Financial word of the day: Heteroscedasticity — meaning, usage, and why it matters more than ever

Financial word of the day: Heteroscedasticity describes a situation where risk (variance) changes with the level of a variable. In financial models, this means volatility is not constant. Most pricing and forecasting models assume stable variance. When heteroscedasticity exists, risk is mismeasured. That can distort standard errors, confidence levels, and asset valuation.