Esmeralda A. Ramalho () (Universidade de Evora, Departamento de Economia, CEFAGE-UE) Joaquim J.S. Ramalho () (Universidade de Evora, Departamento de Economia, CEFAGE-UE) José M.R. Murteira () (Faculdade de Economia, Universidade de Coimbra, CEMAPRE)
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In many economic settings, the variable of interest is often a fraction or a proportion, being defined only on the unit interval. The bounded nature of such variables and, in some cases, the possibility of nontrivial probability mass accumulating at one or both boundaries raise some interesting estimation and inference issues. In this paper we: (i) provide a comprehensive survey of the main alternative models and estimation methods suitable to deal with fractional response variables; (ii) propose a full testing methodology to assess the validity of the assumptions required by each alternative estimator; and (iii) examine the finite sample properties of most of the estimators and tests discussed through an extensive Monte Carlo study. An application concerning corporate capital structure choices is also provided.
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Paper provided by University of Evora, CEFAGE-UE (Portugal) in its series CEFAGE-UE Working Papers with number
2009_08.