Work

Panel-Data Estimation in Finance: Testable Assumptions and Parameter (In)Consistency

Year: 2018

Type: article

Abstract: We investigate the strict-exogeneity assumption, a necessary condition for estimator consistency in many finance panel-data applications. We outline tests for strict exogeneity in both traditional (non–instrumental variable (IV)) and IV settings. When we apply these tests in common traditional finance panel regressions, we find that the strict-exogeneity assumption is often strongly rejected, suggesting large inference errors. We test for strict exogeneity in specific finance panel-data IV settings and illustrate the potential for these tests to help confirm, or rule out, the validity of common panel-data IV estimators. We offer recommendations to address the strict-exogeneity issue in finance research.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109018000996

Authors: William D. Grieser, Charles J. Hadlock

Language: English

Topic: Spatial and Panel Data Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3122819599

FWCI: 11.36

Cites: 40

Cited by: 66

Related to: 10