Robust exogeneity tests in the presence of outliers
Exogeneity testing is studied in the presence of outliers in response variables. Robust tests based on least absolute deviations (LAD) and M estimators are proposed and illustrated with an application to Mroz (1987) data. Our simulation results show that the proposed robust tests outperform the traditional Hausman test for exogeneity in terms of empirical power in the presence of outliers in response variables. Nevertheless, unlike the conventional Hausman test, which is undersized, the empirical size of the LAD-based exogeneity test exceeds its nominal size.
Volume (Year): 3 (2006)
Issue (Month): 29 ()
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- Peracchi, Franco, 1991.
Cambridge University Press, vol. 7(01), pages 69-84, March.
- Thomas Mroz, .
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University of Chicago - Population Research Center
84-8, Chicago - Population Research Center.
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