EconPapers    
Economics at your fingertips  
 

Valid Heteroskedasticity Robust Testing

Benedikt M. P\"otscher and David Preinerstorfer
Authors registered in the RePEc Author Service: Benedikt M. Pötscher

Papers from arXiv.org

Abstract: Tests based on heteroskedasticity robust standard errors are an important technique in econometric practice. Choosing the right critical value, however, is not simple at all: conventional critical values based on asymptotics often lead to severe size distortions; and so do existing adjustments including the bootstrap. To avoid these issues, we suggest to use smallest size-controlling critical values, the generic existence of which we prove in this article for the commonly used test statistics. Furthermore, sufficient and often also necessary conditions for their existence are given that are easy to check. Granted their existence, these critical values are the canonical choice: larger critical values result in unnecessary power loss, whereas smaller critical values lead to over-rejections under the null hypothesis, make spurious discoveries more likely, and thus are invalid. We suggest algorithms to numerically determine the proposed critical values and provide implementations in accompanying software. Finally, we numerically study the behavior of the proposed testing procedures, including their power properties.

Date: 2021-04, Revised 2023-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://arxiv.org/pdf/2104.12597 Latest version (application/pdf)

Related works:
Working Paper: Valid Heteroskedasticity Robust Testing (2023) Downloads
Working Paper: Valid Heteroskedasticity Robust Testing (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2104.12597

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2025-03-22
Handle: RePEc:arx:papers:2104.12597