Expected Value of error term is 0. ????

[cleverCFA]

for quant, what does this actually mean? I keep reading this statement and I can easily memorise it, but what do they mean the expected value of the error term is zero? How does one expect it to be anything else? If I expected the error term value to be 5, what does that mean exactly?

 

[breadmaker]

I’m assuming you’re talking about linear regression. The error term is the deviation between observed points and the fitted line. The observed points will be above and below the fitted line, so if I took the average of all the deviations, it should be 0 or darned near 0.

 

[breadmaker]

Theoretically…

 

[S2000magician]

If you do a least-squares regression, it has to be zero.
It’s a calculus thing.