Independence of Residuals in Regression Analysis

A research analyst at a financial firm is evaluating a multiple regression model that predicts stock returns based on several independent variables, including market returns, company size, and sector performance. Before finalizing the model, the analyst wishes to verify that the assumptions of the multiple regression analysis hold.

There are key assumptions in multiple regression analysis that need to be satisfied to ensure valid inference from the model. One of the assumptions pertains to the independence of the residuals.

Which of the following statements best describes the implication of violating the assumption of independence of residuals in a multiple regression model?