Financial Panel Data Models, Strict Versus Contemporaneous Exogeneity, and Durbin-Wu-Hausman Specification Tests

Robert H. Patrick ()
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Robert H. Patrick: Rutgers University

Chapter 78 in Encyclopedia of Finance, 2022, pp 1799-1828 from Springer

Abstract: Abstract Panel data, pooling cross-sectional and time series data, is increasingly used in estimating financial models. This chapter presents estimators for pooled, fixed effects (FE), and random effects (RE) linear panel data models, assumptions on which they are based, particularly contemporaneous and strict exogeneity assumptions on the explanatory variables, and model specification testing (DWH and Wooldridge tests). Implications of estimator and specification choice on parameter consistency and standard error efficiency are developed. The relationship between the approaches, choice of approach, and their advantages and disadvantages are discussed. Examples illustrate application of the estimators and tests, applying the concepts and testing specifications to illustrate their use and interpretation.

Keywords: Panel data; Fixed effects; Random effects; Endogeneity; Strict exogeneity; Specification tests (search for similar items in EconPapers)
JEL-codes: C23 C51 C52 C58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/978-3-030-91231-4_78

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