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Robust tests for heteroskedasticity in the one-way error components model

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  • Montes-Rojas, Gabriel
  • Sosa-Escudero, Walter

Abstract

This paper constructs tests for heteroskedasticity in one-way error components models, in line with Baltagi et al. [Baltagi, B.H., Bresson, G., Pirotte, A., 2006. Joint LM test for homoskedasticity in a one-way error component model. Journal of Econometrics 134, 401-417]. Our tests have two additional robustness properties. First, standard tests for heteroskedasticity in the individual component are shown to be negatively affected by heteroskedasticity in the remainder component. We derive modified tests that are insensitive to heteroskedasticity in the component not being checked, and hence help identify the source of heteroskedasticity. Second, Gaussian-based LM tests are shown to reject too often in the presence of heavy-tailed (e.g. t-Student) distributions. By using a conditional moment framework, we derive distribution-free tests that are robust to non-normalities. Our tests are computationally convenient since they are based on simple artificial regressions after pooled OLS estimation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 160 (2011)
Issue (Month): 2 (February)
Pages: 300-310

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Handle: RePEc:eee:econom:v:160:y:2011:i:2:p:300-310

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Web page: http://www.elsevier.com/locate/jeconom

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Keywords: Error components Heteroskedasticity Testing;

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References

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  6. Alberto HOLLY & Lucien GARDIOL, 1999. "A Score Test for Individual Heteroscedasticity in a One-way Error Components Model," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9915, Université de Lausanne, Faculté des HEC, DEEP.
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  15. Walter Sosa-Escudero & Anil K. Bera, 2008. "Tests for unbalanced error-components models under local misspecification," Stata Journal, StataCorp LP, vol. 8(1), pages 68-78, February.
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Citations

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Cited by:
  1. Juhl, Ted & Sosa-Escudero, Walter, 2014. "Testing for heteroskedasticity in fixed effects models," Journal of Econometrics, Elsevier, vol. 178(P3), pages 484-494.
  2. Galvao, Antonio F. & Montes-Rojas, Gabriel & Sosa-Escudero, Walter & Wang, Liang, 2013. "Tests for skewness and kurtosis in the one-way error component model," Journal of Multivariate Analysis, Elsevier, vol. 122(C), pages 35-52.
  3. Wu, Jianhong & Li, Guodong, 2014. "Moment-based tests for individual and time effects in panel data models," Journal of Econometrics, Elsevier, vol. 178(P3), pages 569-581.
  4. Packalen, Mikko & Wirjanto, Tony S., 2012. "Inference about clustering and parametric assumptions in covariance matrix estimation," Computational Statistics & Data Analysis, Elsevier, vol. 56(1), pages 1-14, January.

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