Identifying and treating outliers in finance
David Reeb and
Financial Management, 2019, vol. 48, issue 2, 345-384
Outliers represent a fundamental challenge in the empirical finance research. We investigate whether the routine techniques used in finance research to identify and treat outliers are appropriate for the data structures we observe in practice. Specifically, we propose a multivariate identification strategy that can effectively detect outliers. We also introduce an estimator that minimizes the bias outliers caused in both cross‐sectional and panel regressions and provide outlier mitigation guidance. Using replications of four recently published studies in premier finance journals, we show how adjusting for multivariate outliers can lead to significantly different results.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finmgt:v:48:y:2019:i:2:p:345-384
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