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Robust exogeneity tests in the presence of outliers

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  • Sunil Sapra

    ()
    (California State University, Los Angeles)

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    Abstract

    Exogeneity testing is studied in the presence of outliers in response variables. Robust tests based on least absolute deviations (LAD) and M estimators are proposed and illustrated with an application to Mroz (1987) data. Our simulation results show that the proposed robust tests outperform the traditional Hausman test for exogeneity in terms of empirical power in the presence of outliers in response variables. Nevertheless, unlike the conventional Hausman test, which is undersized, the empirical size of the LAD-based exogeneity test exceeds its nominal size.

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume3/EB-06C30036A.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 3 (2006)
    Issue (Month): 29 ()
    Pages: 1-6

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    Handle: RePEc:ebl:ecbull:eb-06c30036

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    Related research

    Keywords: Hausman exogeneity test Robust tests LAD estimator M estimator.;

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    1. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July.
    2. Peracchi, Franco, 1991. "Robust M-Tests," Econometric Theory, Cambridge University Press, vol. 7(01), pages 69-84, March.
    3. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    4. Li, Jing, 2006. "The block bootstrap test of Hausman's exogeneity in the presence of serial correlation," Economics Letters, Elsevier, vol. 91(1), pages 76-82, April.
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