Year: 2026
Type: preprint
Abstract: The analysis of large data panels is important in econometrics and beyond. Prediction and inference methods for such data typically rely on simplifying model assumptions for the covariance structure of errors. One convenient assumption is what we call groupwise sphericity: that errors are uncorrelated across individuals and have constant variance within certain groups. While theoretically useful, in large panels groupwise sphericity is often too restrictive to apply in practice. We therefore develop new quantitative inference tools to test whether deviations from this model assumption are practically relevant. Our approach covers both large-dimensional data matrices and regression panels, in a regime where the cross-sectional dimension is proportional to the sample size. The theory is based on the analysis of extreme eigenvalues of the empirical covariance matrix and uses recent advances in random matrix theory. Numerical experiments demonstrate accurate size control and good power in finite samples.
Source: arXiv (Cornell University)
Authors: Tieplova, Daria, Dörnemann, Nina, Kutta, Tim
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7220379055
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