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Mitigating misleading implications for policy: Treatment of outliers in a difference-indifferences framework

Author

Listed:
  • AAlessio Reghezza

    (Bangor University)

  • Jonathan Williams

    (Bangor University)

  • Philip Molyneux

    (University of Sharjah)

Abstract

Applications of the difference-in-differences estimator in economics, banking and finance, and management commonly treat outliers using the winsorize method. However, failure to winsorize outliers in both the treatment and controls groups introduces volatility in estimated coefficients, significance levels, and standard errors. A faulty process can lead to an exogenous event realising a significant effect that proper process would fail to detect. In demonstration, we randomly generate placebo interventions in bank-level data and discuss how to detect and limit the problem.

Suggested Citation

  • AAlessio Reghezza & Jonathan Williams & Philip Molyneux, 2019. "Mitigating misleading implications for policy: Treatment of outliers in a difference-indifferences framework," Working Papers 19014, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    • Handle: RePEc:bng:wpaper:19014
    as

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    File URL: https://www.bangor.ac.uk/business/research/documents/BBSWP-19-14.pdf
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    References listed on IDEAS

    as
    1. Timothy Gubler & Ian Larkin & Lamar Pierce, 2016. "Motivational Spillovers from Awards: Crowding Out in a Multitasking Environment," Organization Science, INFORMS, vol. 27(2), pages 286-303, April.
    2. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    3. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
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    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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