Hey. Iam trying to understand how specification of the equation can lead to hetroscedasticity. This is stright out of my notes.(adsbygoogle = window.adsbygoogle || []).push({});

Y_{t}=B_{1}+B_{2}x_{2t}+B_{3}x_{3t}+......+B_{k}X_{kt}+[itex]\gamma[/itex][itex]\varpi+[/itex]ε[itex]^{}_{t}[/itex]

Y_{t}=B_{1}+B_{2}x_{2t}+B_{3}x_{3t}+......+B_{k}x_{kt}+ε[itex]^{*}_{t}[/itex]

where

ε[itex]^{*}_{t}[/itex] = ε_{t}+ [itex]\gamma[/itex][itex]\varpi[/itex]_{t}

Since Var(ε_{t}) = [itex]\sigma[/itex][itex]^{2}_{ε}+[/itex][itex]\gamma[/itex][itex]^{}_{t}[/itex]var([itex]\varpi[/itex]_{t})

I dont understand the variance part. I know that the variance of any epsilon is [itex]\sigma[/itex]^{2}, but why does the γ_{t}go outside the variance operator? I know it's a constant so why isn't it γ^{2}?

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# Having trouble understanding sources of hetroscedasticity

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