The Simulation Study to Test the Performance of Quantile Regression Method With Heteroscedastic Error Variance

Abstract

The purpose of this article was to describe the ability of the quantile regression method in overcoming the violation of classical assumptions. The classical assumptions that are violated in this study are variations of non-homogeneous error or heteroscedasticity. To achieve this goal, the simulated data generated with the design of certain data distribution. This study did a comparison between the models resulting from the use of the ordinary least squares and the quantile regression method to the same simulated data. Consistency of both methods was compared with conducting simulation studies as well. This study proved that the quantile regression method had standard error, confidence interval width and mean square error (MSE) value smaller than the ordinary least squares method. Thus it can be concluded that the quantile regression method is able to solve the problem of heteroscedasticity and produce better model than the ordinary least squares. In addition the ordinary least squares is not able to solve the problem of heteroscedasticity.