Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends

Jonathan Roth

American Economic Review: Insights, 2022, vol. 4, issue 3, 305-22

Abstract: This paper discusses two important limitations of the common practice of testing for preexisting differences in trends ("pre-trends") when using difference-in-differences and related methods. First, conventional pre-trends tests may have low power. Second, conditioning the analysis on the result of a pretest can distort estimation and inference, potentially exacerbating the bias of point estimates and under-coverage of confidence intervals. I analyze these issues both in theory and in simulations calibrated to a survey of recent papers in leading economics journals, which suggest that these limitations are important in practice. I conclude with practical recommendations for mitigating these issues.

JEL-codes: A14 C23 C51 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (165)

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DOI: 10.1257/aeri.20210236

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