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Robust tests for heteroskedasticity in the one-way error components model

  • Montes-Rojas, Gabriel
  • Sosa-Escudero, Walter

This paper constructs tests for heteroskedasticity in one-way error components models, in line with Baltagi et al. [Baltagi, B.H., Bresson, G., Pirotte, A., 2006. Joint LM test for homoskedasticity in a one-way error component model. Journal of Econometrics 134, 401-417]. Our tests have two additional robustness properties. First, standard tests for heteroskedasticity in the individual component are shown to be negatively affected by heteroskedasticity in the remainder component. We derive modified tests that are insensitive to heteroskedasticity in the component not being checked, and hence help identify the source of heteroskedasticity. Second, Gaussian-based LM tests are shown to reject too often in the presence of heavy-tailed (e.g. t-Student) distributions. By using a conditional moment framework, we derive distribution-free tests that are robust to non-normalities. Our tests are computationally convenient since they are based on simple artificial regressions after pooled OLS estimation.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 160 (2011)
Issue (Month): 2 (February)
Pages: 300-310

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Handle: RePEc:eee:econom:v:160:y:2011:i:2:p:300-310
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  3. Badi H. Baltagi & Georges Bresson & Alain Pirotte, 2005. "Joint LM Test for Homoskedasticity in a One-Way error Component Model," Center for Policy Research Working Papers 72, Center for Policy Research, Maxwell School, Syracuse University.
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  6. Walter Sosa Escudero & Anil K. Bera, 2005. "Tests for Unbalanced Error Components Models Under Local Misspecification," Working Papers 81, Universidad de San Andres, Departamento de Economia, revised Dec 2007.
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