Testing for Sphericity in a Fixed Effects Panel Data Model (Revised July 2009)
AbstractThis paper proposes a test for sphericity in a fixed effects panel data model. It uses the Random Matrix Theory based approach of Ledoit and Wolf (2002) to test for sphericity of the error terms in a fixed effects panel model with a large number of cross-sectional units and time series observations. Since the errors are unobservable, the residuals from the fixed effects regression are used. The limiting distribution of the proposed test statistic is derived. Additionally, its finite sample properties are examined using Monte Carlo simulations.
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Bibliographic InfoPaper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 112.
Length: 31 pages
Date of creation: Jul 2009
Date of revision:
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Sphericity; panel data; cross-sectional dependence; John test;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-22 (All new papers)
- NEP-ECM-2009-03-22 (Econometrics)
- NEP-GEO-2009-03-22 (Economic Geography)
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