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Financial Panel Data Models, Strict Versus Contemporaneous Exogeneity, and Durbin-Wu-Hausman Specification Tests

In: Encyclopedia of Finance

Author

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  • Robert H. Patrick

    (Rutgers University)

Abstract

Panel data, pooling cross-sectional and time series data, is increasingly used in estimating financial models. This chapter presents estimators for pooled, fixed effects (FE), and random effects (RE) linear panel data models, assumptions on which they are based, particularly contemporaneous and strict exogeneity assumptions on the explanatory variables, and model specification testing (DWH and Wooldridge tests). Implications of estimator and specification choice on parameter consistency and standard error efficiency are developed. The relationship between the approaches, choice of approach, and their advantages and disadvantages are discussed. Examples illustrate application of the estimators and tests, applying the concepts and testing specifications to illustrate their use and interpretation.

Suggested Citation

  • Robert H. Patrick, 2022. "Financial Panel Data Models, Strict Versus Contemporaneous Exogeneity, and Durbin-Wu-Hausman Specification Tests," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 78, pages 1799-1828, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_78
    DOI: 10.1007/978-3-030-91231-4_78
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    More about this item

    Keywords

    Panel data; Fixed effects; Random effects; Endogeneity; Strict exogeneity; Specification tests;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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