Standard errors estimation in the presence of high leverage point and heteroscedastic errors in multiple linear regression

Abstract

In this study, the Robust Heteroscedastic Consistent Covariance Matrix (RHCCM) was proposed in order to estimate standard errors of regression coefficients in the presence of high leverage points and heteroscedastic errors in multiple linear regression. Robust Heteroscedastic Consistent Covariance Matrix (RHCCM) is the combination of a robust method and Heteroscedasticit Consistent Covariance Matrix (HCCM). The robust method is used to eliminate the effect of high leverage points while HCCM is mainly used to eliminate the effect of heteroscedastic errors. The performance of RHCCM was assessed through an empirical study and compared with results obtained when the original Heteroscedastic Consistent Covariance Matrix was used.