Variance, Covariance Matrix, Linear Regression, Standard Error, Confidence Interval.
— E(ϵ|X))’ is a row vector of size (1 x n) and (ϵ — E(ϵ|X)) is a column vector of size (n x 1). Hence the product (ϵ — E(ϵ|X))’ (ϵ — E(ϵ|X)) is a (1 x 1) matrix, i.e. for our purposes, a single number. The following diagram illustrates the multiplication of (ϵ — E(ϵ|X))’ with (ϵ — E(ϵ|X)): Solving