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

Author

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  • Gabriel Montes-Rojas

    () (Department of Economics - UCL - University College of London [London])

  • Walter Sosa-Escudero

    (Department of Economics - UMSA - Universidad Mayor de San Andrés)

Abstract

This paper constructs tests for heteroskedasticity in one-way error components models, in line with Baltagi, Bresson and Pirotte (Journal of Econometrics, 134, 2006). 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 moments 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.

Suggested Citation

  • Gabriel Montes-Rojas & Walter Sosa-Escudero, 2010. "Robust tests for heteroskedasticity in the one-way error components model," Post-Print hal-00768191, HAL.
  • Handle: RePEc:hal:journl:hal-00768191
    DOI: 10.1016/j.jeconom.2010.09.010
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00768191
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    References listed on IDEAS

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    1. Wooldridge, Jeffrey M., 1991. "On the application of robust, regression- based diagnostics to models of conditional means and conditional variances," Journal of Econometrics, Elsevier, vol. 47(1), pages 5-46, January.
    2. Baltagi, Badi H. & Jung, Byoung Cheol & Song, Seuck Heun, 2010. "Testing for heteroskedasticity and serial correlation in a random effects panel data model," Journal of Econometrics, Elsevier, vol. 154(2), pages 122-124, February.
    3. Baltagi, Badi H. & Bresson, Georges & Pirotte, Alain, 2006. "Joint LM test for homoskedasticity in a one-way error component model," Journal of Econometrics, Elsevier, vol. 134(2), pages 401-417, October.
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    5. Walter Sosa-Escudero & Anil K. Bera, 2008. "Tests for unbalanced error-components models under local misspecification," Stata Journal, StataCorp LP, vol. 8(1), pages 68-78, February.
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    15. Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
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    Citations

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    Cited by:

    1. Packalen, Mikko & Wirjanto, Tony S., 2012. "Inference about clustering and parametric assumptions in covariance matrix estimation," Computational Statistics & Data Analysis, Elsevier, vol. 56(1), pages 1-14, January.
    2. Juhl, Ted & Sosa-Escudero, Walter, 2014. "Testing for heteroskedasticity in fixed effects models," Journal of Econometrics, Elsevier, vol. 178(P3), pages 484-494.
    3. Javier Alejo & Antonio Galvao & Gabriel Montes-Rojas & Walter Sosa-Escudero, 2015. "Tests for normality in linear panel-data models," Stata Journal, StataCorp LP, vol. 15(3), pages 822-832, September.
    4. Galvao, Antonio F. & Montes-Rojas, Gabriel & Sosa-Escudero, Walter & Wang, Liang, 2013. "Tests for skewness and kurtosis in the one-way error component model," Journal of Multivariate Analysis, Elsevier, vol. 122(C), pages 35-52.
    5. Andreas Rathgeber & David Rudolph & Stefan Stöckl, 2015. "Pricing anomaly at the first sight: same borrower in different currencies faces different credit spreads—an explanation by means of a quanto option," Review of Derivatives Research, Springer, vol. 18(2), pages 107-143, July.
    6. repec:eee:jmvana:v:165:y:2018:i:c:p:101-116 is not listed on IDEAS
    7. Wu, Jianhong & Li, Guodong, 2014. "Moment-based tests for individual and time effects in panel data models," Journal of Econometrics, Elsevier, vol. 178(P3), pages 569-581.

    More about this item

    Keywords

    C12; C23; Error components; Heteroskedasticity; Testing;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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