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Robust exogeneity tests in the presence of outliers

Author

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  • Sunil Sapra

    () (California State University, Los Angeles)

Abstract

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.

Suggested Citation

  • Sunil Sapra, 2006. "Robust exogeneity tests in the presence of outliers," Economics Bulletin, AccessEcon, vol. 3(29), pages 1-6.
  • Handle: RePEc:ebl:ecbull:eb-06c30036
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    References listed on IDEAS

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    1. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    2. Li, Jing, 2006. "The block bootstrap test of Hausman's exogeneity in the presence of serial correlation," Economics Letters, Elsevier, vol. 91(1), pages 76-82, April.
    3. Peracchi, Franco, 1991. "Robust M-Tests," Econometric Theory, Cambridge University Press, vol. 7(01), pages 69-84, March.
    4. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-799, July.
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