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Robust Standard Errors in Small Samples: Some Practical Advice

  • Guido W. Imbens
  • Michal Kolesar

In this paper we discuss the properties of confidence intervals for regression parameters based on robust standard errors. We discuss the motivation for a modification suggested by Bell and McCaffrey (2002) to improve the finite sample properties of the confidence intervals based on the conventional robust standard errors. We show that the Bell-McCaffrey modification is the natural extension of a principled approach to the Behrens-Fisher problem, and suggest a further improvement for the case with clustering. We show that these standard errors can lead to substantial improvements in coverage rates even for sample sizes of fifty and more. We recommend researchers calculate the Bell-McCaffrey degrees-of-freedom adjustment to assess potential problems with conventional robust standard errors and use the modification as a matter of routine.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18478.

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Date of creation: Oct 2012
Date of revision:
Handle: RePEc:nbr:nberwo:18478
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  1. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  2. Jerry A. Hausman & Christopher J. Palmer, 2011. "Heteroskedasticity-Robust Inference in Finite Samples," NBER Working Papers 17698, National Bureau of Economic Research, Inc.
  3. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
  4. Bester, C. Alan & Conley, Timothy G. & Hansen, Christian B., 2011. "Inference with dependent data using cluster covariance estimators," Journal of Econometrics, Elsevier, vol. 165(2), pages 137-151.
  5. James H. Stock & Mark W. Watson, 2006. "Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression," NBER Technical Working Papers 0323, National Bureau of Economic Research, Inc.
  6. Cragg, John G, 1983. "More Efficient Estimation in the Presence of Heteroscedasticity of Unknown Form," Econometrica, Econometric Society, vol. 51(3), pages 751-63, May.
  7. Chesher, Andrew & Austin, Gerard, 1991. "The finite-sample distributions of heteroskedasticity robust Wald statistics," Journal of Econometrics, Elsevier, vol. 47(1), pages 153-173, January.
  8. 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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