The sample regression model Ri = a + bpi + u is estimated using OLS. Ri is the annual return (in percentage points) on shares of company i and pi is the earnings per share (in pounds sterling) of company i within the same year. For a sample of 200 listed companies, the estimates are a = 0:2 and b = 3.1. The standard errors are 0:15 and 1:2, respectively.

Do you think the errors would be heteroskedastic in this case?

Describe how you would test for heteroskedasticity in this regression.

Outline the potential consequences of heteroskedasticity in this case and how these consequences could be addressed/remedied.\