Is neglected heterogeneity really an issue in binary and fractional regression models? A simulation exercise for logit, probit and loglog models
In this paper we examine theoretically and by simulation whether or not unobserved heterogeneity independent of the included regressors is really an issue in logit, probit and loglog models with both binary and fractional data. We found that unobserved heterogeneity: (i) produces an attenuation bias in the estimation of regression coefficients; (ii) is innocuous for logit estimation of average sample partial effects, while in the probit and loglog cases there may be important biases in the estimation of those quantities; (iii) has much more destructive effects over the estimation of population partial effects; (iv) only for logit models does not affect substantially the prediction of outcomes; and (v) is innocuous for the size and consistency of Wald tests for the significance of observed regressors but, in small samples, reduces their power substantially.
|Date of creation:||2009|
|Contact details of provider:|| Postal: Colégio Espírito SANTO|
Phone: (351) 266 740 869
Web page: http://www.cefage.uevora.pt
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chesher, Andrew & Peters, Simon, 1994. "Symmetry, Regression Design, and Sampling Distributions," Econometric Theory, Cambridge University Press, vol. 10(01), pages 116-129, March.
- Esmeralda A. Ramalho & Joaquim J. S. Ramalho, 2012.
"Alternative Versions of the RESET Test for Binary Response Index Models: A Comparative Study,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 74(1), pages 107-130, 02.
- Esmeralda A. Ramalho & Joaquim Ramalho, 2010. "Alternative versions of the RESET test for binary response index models: a comparative study," CEFAGE-UE Working Papers 2010_09, University of Evora, CEFAGE-UE (Portugal).
- Chesher, Andrew, 1995. "A Mirror Image Invariance for M-Estimators," Econometrica, Econometric Society, vol. 63(1), pages 207-211, January.
- Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
- Leslie E. Papke & Jeffrey M. Wooldridge, 1993. "Econometric Methods for Fractional Response Variables with an Application to 401(k) Plan Participation Rates," NBER Technical Working Papers 0147, National Bureau of Economic Research, Inc.
- Lee, Lung-Fei, 1982. "Specification error in multinomial logit models : Analysis of the omitted variable bias," Journal of Econometrics, Elsevier, vol. 20(2), pages 197-209, November.
- Cramer,J. S., 2011. "Logit Models from Economics and Other Fields," Cambridge Books, Cambridge University Press, number 9780521188036, Diciembre.
- Cramer,J. S., 2003. "Logit Models from Economics and Other Fields," Cambridge Books, Cambridge University Press, number 9780521815888, November.
- J. S. Cramer, 2007. "Robustness of Logit Analysis: Unobserved Heterogeneity and Mis-specified Disturbances," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(4), pages 545-555, 08.
- Stoker, Thomas M, 1986. "Consistent Estimation of Scaled Coefficients," Econometrica, Econometric Society, vol. 54(6), pages 1461-1481, November.
- Yatchew, Adonis & Griliches, Zvi, 1985. "Specification Error in Probit Models," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 134-139, February.
- Gourieroux,Christian, 2000. "Econometrics of Qualitative Dependent Variables," Cambridge Books, Cambridge University Press, number 9780521331494, Diciembre.
- Gourieroux,Christian, 2000. "Econometrics of Qualitative Dependent Variables," Cambridge Books, Cambridge University Press, number 9780521589857, Diciembre. Full references (including those not matched with items on IDEAS)