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## Estimating standard errors in finance panel data sets: Comparing approaches (2007)

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Citations: | 835 - 6 self |

### Citations

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3282 | Econometric Analysis of Cross Section and Panel Data - Wooldridge - 2002 |

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- 1973
(Show Context)
Citation Context ...ive way to estimate the regression coefficients and standard errors which has been used in the literature, and one often suggested when the residuals are not independent, is the FamaMacBeth approach (=-=Fama and MacBeth, 1973-=-).10 In this approach, the researcher runs T cross sectional regressions. The average of the T estimates is the coefficient estimate and the estimated variance of the Fama-MacBeth estimate is calculat... |

1156 | Heteroskedasticity and autocorrelation consistent covariance matrix estimation - Andrews - 1991 |

1092 | H 2001 Asset Pricing - Cochrane |

772 | How Much Should We Trust Differencesin-Differences Estimates? The Quarterly - Bertrand, Duflo, et al. - 2004 |

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674 |
An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables
- Moulton
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Citation Context ...andard errors using the Newey-West procedure (Newey and West, 1987) modified for use in a panel data set, while 22 percent of the papers reported Rogers standard errors (Rogers, 1993, Williams, 2000, =-=Moulton, 1990-=-) which are White standard errors adjusted to account for possible correlation within a cluster. These are also called clustered standard errors. 2Although the literature has used a diversity of metho... |

562 |
Random Group Effects and the Precision of Regression Estimates
- Moulton
- 1986
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Citation Context ... Xs. We will return to this issue in Section V when we examine non-fixed firm effects. If the panel is unbalanced, the true standard error and the bias in the OLS standard errors will be even larger (=-=Moulton, 1986-=-).s6 Var [ β̂OLS & β ] ' E jN i'1 jT t'1 Xit εit 2 jN i'1 jT t'1 X 2it &2 ' E jN i'1 jT t'1 Xit εit 2 jN i'1 jT t'1 X 2it &2 ' E jN i'1 jT t'1 X 2it ε 2 it % 2jT&1 t'1 jT s't%1 Xit Xis εit εis jN i'1 ... |

404 | Market Timing and Capital Structure - Baker, Wurgler - 2002 |

360 | Disappearing dividends: changing firm characteristics or lower propensity to pay? CRSP Working Paper No - Fama, French - 2000 |

346 | Robust Inference with Multiway Clustering - Cameron, Gelbach, et al. |

338 | Specification Tests in - Hausman - 1978 |

337 | Testing Trade-off and Pecking Order Predictions about Dividends and Debt’, The Review of Financial Studies,
- Fama, French
- 2002
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Citation Context ...ave suggested adjusting the standard errors for the estimated first order auto-correlation of the estimated slope coefficients (Chen, Hong, and Stein, 2001; Cochrane, 2001;sLakonishok, and Lee, 2001; =-=Fama and French, 2002-=-; Bakshi, Kapadia, and Madan, 2003; Chakravarty, Gulen, and Mayhew, 2004). The proposed adjustment is to estimate the correlation between the yearly coefficient estimates (i.e. Corr[βt , βt-1 ] = θ), ... |

261 |
Founding-family ownership and firm performance: evidence from the S&P 500
- Anderson, Reeb
- 2003
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Citation Context ...ng on that dimension. Since most panel data sets have more firms than years, the most common approach is to include dummy variables for each year (to absorb the time effect) and then cluster by firm (=-=Anderson and Reeb, 2004-=-, Gross and Souleles, 2004, Petersen and Faulkendar, 2004, Sapienza, 2004, and Lamont and Polk, 2001).sI will use this approach in our simulations.sA) Rogers Standard Error Estimates. To test the rela... |

231 | A Note on Robust Variance Estimation for Cluster-Correlated Data - Williams - 2000 |

228 | Computing Robust Standard Errors for Within-Groups Estimators - Arellano - 1987 |

189 | Does the source of capital affect capital structure?”, Review of Financial Studies - Faulkender, Petersen - 1996 |

185 | Do conglomerate firms allocate resources inefficiently across industries - Maksimovic, Phillips - 2002 |

171 | The e¤ects of government ownership on bank lending
- Sapienza
- 2004
(Show Context)
Citation Context ...ost common approach is to include dummy variables for each year (to absorb the time effect) and then cluster by firm (Anderson and Reeb, 2004, Gross and Souleles, 2004, Petersen and Faulkendar, 2004, =-=Sapienza, 2004-=-, and Lamont and Polk, 2001).sI will use this approach in our simulations.sA) Rogers Standard Error Estimates. To test the relative performance of the two methods, 5,000 data sets were simulated with ... |

155 | Cluster-Sample Methods in Applied Econometric." Paper presented at the AEA annual meeting - Wooldridge |

142 |
Are insider trades informative
- Lakonishok, Lee
- 2001
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Citation Context ...the auto correlation of the slope coefficients was calculated. I then calculated the original and adjusted Fama-MacBeth standard errors, assuming both an infinite and a finite lag of T-1 periods (see =-=Lakonishok and Lee, 2001-=-).17 The estimated autocorrelation is imprecisely estimated as predicted by Fama and French (2002). The 90th percentile confidence interval ranges from -0.602 to 0.413, but the mean is -0.1134 (see Ta... |

138 | Stock valuation and learning about profitability - Pastor, Veronesi - 2003 |

137 | A simple formula for standard errors that cluster by both firm and time. Working Paper - Thompson - 2005 |

130 | What drives firm-level stock returns?, The
- Vuolteenaho
- 2002
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Citation Context ...ifferent number of observations per year. Thus in an unbalanced panel data set, Fama-MacBeth and OLS coefficient estimates can differ due to a different weighting of observations (Cohen, Gompers, and =-=Vuolteenaho, 2002-=-, Vuolteenaho, 2002). In addition, since Fama-MacBeth runs cross sectional regressions, any variable which does not vary across firms within a year (e.g. the stock market return, or the growth of GDP)... |

114 | cross-listings and the private benefits of control: evidence from dual-class firms - Doidge, 2004a |

110 | An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, forthcoming
- Gross, Souleles
- 2001
(Show Context)
Citation Context ...ce most panel data sets have more firms than years, the most common approach is to include dummy variables for each year (to absorb the time effect) and then cluster by firm (Anderson and Reeb, 2004, =-=Gross and Souleles, 2004-=-, Petersen and Faulkendar, 2004, Sapienza, 2004, and Lamont and Polk, 2001).sI will use this approach in our simulations.sA) Rogers Standard Error Estimates. To test the relative performance of the tw... |

104 | Conditioning manager alphas on economic information: another look at the persistence of performance - Christopherson, Ferson, et al. - 1999 |

90 |
Robust Standard Error Estimation in Fixed-Effects Panel Models
- Kezdi
(Show Context)
Citation Context ...s with in a cluster, its consistency depends upon having a sufficient number of clusters to estimate these standard errors. Based on these results, 10 clusters is too small and 500 in sufficient (see =-=Kezdi, 2002-=-, and Bertrand, Duflo, and Mullainathan, 2004 for similar results). To explore this issue further, I simulated data sets of 5,000 observations but with the number of years (or clusters) ranging from 1... |

88 | Why constrain your mutual fund manager - Almazan, Brown, et al. - 2004 |

86 | Forecasting crashes: Trading volume, past returns, and conditional skewness in stock prices
- Chen, Hong, et al.
- 2001
(Show Context)
Citation Context ...used the Fama-MacBeth approach have acknowledged the downward bias and have suggested adjusting the standard errors for the estimated first order auto-correlation of the estimated slope coefficients (=-=Chen, Hong, and Stein, 2001-=-; Cochrane, 2001;sLakonishok, and Lee, 2001; Fama and French, 2002; Bakshi, Kapadia, and Madan, 2003; Chakravarty, Gulen, and Mayhew, 2004). The proposed adjustment is to estimate the correlation betw... |

78 | Short sales, institutional investors and the cross-section of stock returns - Nagel - 2005 |

77 | Debt, leases, taxes, and the endogeneity of corporate tax status - Graham, Lemmon, et al. - 1998 |

76 |
Regression Standard Errors
- Rogers
- 1993
(Show Context)
Citation Context ... of the papers adjusted the standard errors using the Newey-West procedure (Newey and West, 1987) modified for use in a panel data set, while 22 percent of the papers reported Rogers standard errors (=-=Rogers, 1993-=-, Williams, 2000, Moulton, 1990) which are White standard errors adjusted to account for possible correlation within a cluster. These are also called clustered standard errors. 2Although the literatur... |

74 | 2005, Do Domestic Investors Have an Edge? The Trading Experience - Choe, Kho, et al. |

67 | 2002, "Does Diversification Destroy Value? Evidence from the Industry Shocks
- Lamont, Polk
(Show Context)
Citation Context ...is to include dummy variables for each year (to absorb the time effect) and then cluster by firm (Anderson and Reeb, 2004, Gross and Souleles, 2004, Petersen and Faulkendar, 2004, Sapienza, 2004, and =-=Lamont and Polk, 2001-=-).sI will use this approach in our simulations.sA) Rogers Standard Error Estimates. To test the relative performance of the two methods, 5,000 data sets were simulated with 21 both a firm and a time e... |

58 | Informed trading in stock and option markets
- Chakravarty, Gulen, et al.
- 2004
(Show Context)
Citation Context ...ated first order auto-correlation of the estimated slope coefficients (Chen, Hong, and Stein, 2001; Cochrane, 2001;sLakonishok, and Lee, 2001; Fama and French, 2002; Bakshi, Kapadia, and Madan, 2003; =-=Chakravarty, Gulen, and Mayhew, 2004-=-). The proposed adjustment is to estimate the correlation between the yearly coefficient estimates (i.e. Corr[βt , βt-1 ] = θ), and then multiply the estimated variance by (1+ θ)/(1-θ) to account for ... |

55 | An Asymptotic Theory for Estimating Beta-pricing Models Using Crosssectional Regression. Journal of Finance 53:1285–1309 - Jagannathan, Wang - 1998 |

53 | 2007a), “Asymptotic Properties of Robust Variance Matrix Estimator for Panel Data when T is Large - Hansen |

52 | Do behavioral biases affect prices - Coval, D, et al. - 2005 |

40 |
Managerial timing and corporate liquidity: evidence from actual share repurchases
- Brockman, Chung
- 2001
(Show Context)
Citation Context .... It can be modified for use in a panel data set by estimating only correlations between lagged residuals in the same cluster (seesBertrand, Duflo, and Mullainathan, 2004, Doidge, 2004, MacKay, 2003, =-=Brockman and Chung, 2001-=-). This also simplifies the problem of choosing a lag length since the maximum lag length is one less than the maximum number of years per firm.11 To examine the relative performance of the and T-t le... |

39 | Vuolteenaho (2002). Who Underreacts to Cash-Flow News? Evidence from Trading Between Individuals and Institutions - Cohen, Gompers, et al. |

31 | Liquidity: Urban versus rural firms - Loughran, Schultz - 2005 |

31 | T-Statistic Based Correlation and Heterogeneity Robust Inference - Ibragimov, Müller - 2010 |

27 | Longitudinal Analysis Using Generalized Linear Models." Biometrika - Liang, Zeger - 1986 |

24 | 2006), “Inference with Difference in Differences and Other Panel Data,” forthcoming in The Review of Economics and Statistics - Donald, Lang |

22 | Dividend taxes and share prices: evidence from real estate investment trusts - Gentry, Kemsley, et al. - 2003 |

20 |
Real Flexibility and Financial Structure: An Empirical Analysis”, forthcoming, Review of Financial Studies
- MacKay
- 2002
(Show Context)
Citation Context ...le time series. It can be modified for use in a panel data set by estimating only correlations between lagged residuals in the same cluster (seesBertrand, Duflo, and Mullainathan, 2004, Doidge, 2004, =-=MacKay, 2003-=-, Brockman and Chung, 2001). This also simplifies the problem of choosing a lag length since the maximum lag length is one less than the maximum number of years per firm.11 To examine the relative per... |

20 | 2006), “Market Reaction to Tangible and Intangible - Daniel, Titman |

18 | Tibshirani R. Bootstrap measures of standard errors, confidence intervals, and other measures of statistical accuracy. Stat Sci - Efron - 1986 |

17 | Robust Standard Error Estimation - Kezdi - 2004 |

8 | Debt Maturity and the Effects of Growth Opportunities - Johnson - 2003 |

8 | The limits of noise trading: An experimental analysis - Bloomfield, O’Hara, et al. - 2006 |

6 | and Doron Nissim, 2002, “Valuation of the Debt Tax Shield - Kemsley |

2 | Panel data inference in finance: Least squares versus Fama-McBeth. Unpublished working paper - Skoulakis - 2009 |

1 | Robust Interfence wiht Multiway Clustering,” University of California-Davis working paper - Cameron, Gelbach, et al. - 2006 |

1 | Firms' Histories and Their Capital Structures” forthcoming - Kayhan, Titman - 2004 |