Is the zero expectation of the residuals in Gauss-Markov theorem really an hypothesis

least squaresparameter estimationregressionstatistical-inferencestatistics

Wikipedia says

The Gauss–Markov theorem states that the ordinary least squares (OLS) estimator has the lowest sampling variance within the class of linear unbiased estimators, if the errors in the linear regression model are uncorrelated, have equal variances and expectation value of zero.

Alright. But the fact is that, when I compute the expectation of the residuals taking into account the OLS estimator, I naturally obtain $0$.

So my question is: do we need to explictly consider the zero-expectation of the residuals as an hypothesis ? Isn't it already induced by the computation of the estimator through OLS ?

Best Answer

Two things:

  1. You are confusing residuals and errors; they are not the same. The former are the terms $\hat{e}_i = y - X \hat{\beta}$ and, in particular, they are estimated. The errors correspond to the random component in your model to which you have to ascribe some assumptions. Notice that these assumptions do not need to be met by your residuals: for instance, one may assume the errors are independent, but OLS residuals will sum to zero, showing they are not independent.

  2. Setting the mean of the errors to zero is done to ensure the model is identifiable. Notice that if I consider the model $y = \beta_0 + \beta_1 x + \epsilon$ with $E(\epsilon) = \mu$, then this model cannot be distinguished from $y = \beta_0^\prime + \beta_1x + \epsilon^\prime$ where $\beta_0^\prime = \beta_0 + \mu$ and $E(\epsilon^\prime) = 0$. Without this, parameter estimation makes little sense (and hence you would have no Gauss-Markov theorem).

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