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Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches

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Author Info
Mitchell A. Petersen

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Abstract

In both corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms and across time, and OLS standard errors can be biased. Historically, the two literatures have used different solutions to this problem. Corporate finance has relied on Rogers standard errors, while asset pricing has used the Fama-MacBeth procedure to estimate standard errors. This paper will examine the different methods used in the literature and explain when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11280.

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Date of creation: Apr 2005
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Handle: RePEc:nbr:nberwo:11280

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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
G3 - Financial Economics - - Corporate Finance and Governance
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General

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