Testing for sphericity in a fixed effects panel data model with time-varying variances

Peng Bin (), Xinyuan Shen and Jinqi Ye

Economics Letters, 2019, vol. 181, issue C, 85-89

Abstract: This paper proposes a test for the null of sphericity in a fixed effects panel data model with time-varying variances. We construct new test statistics using the within residuals from the fixed effects panel data regression model on the basis of Li and Yao’s (2018) test procedure. We show that the newly proposed test converges to a standard normal distribution as (n,T)→∞ with n∕T→c∈(0,∞). The power properties of the test are studied under both weak and strong factor model alternatives. Monte Carlo simulations are conducted to examine the finite sample performance.

Keywords: Sphericity test; Fixed effects; Panel data model; Time-varying variances (search for similar items in EconPapers)
JEL-codes: C12 C33 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:181:y:2019:i:c:p:85-89

DOI: 10.1016/j.econlet.2019.05.012

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