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A key assumption of the single index model is that the residual in the single index model e i is independent of e j for

A key assumption of the single index model is that the residual in the single index model e i is independent of e j for all values of i and j , that is E(e i e j ) = 0. What is the intuitive interpretation of this assumption? What advice would you offer to a researcher if it is found that when using actual data for Irish stocks E(e i e j ) 0 ?

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