The Fragility of Sparsity

Michal Koles\'ar, Ulrich K. M\"uller and Sebastian T. Roelsgaard

Papers from arXiv.org

Abstract: We show, using three empirical applications, that linear regression estimates predicated on the assumption of sparsity are fragile in two ways. First, we document that different choices of the regressor matrix which do not impact ordinary least squares (OLS) estimates, such as the choice of baseline category with categorical controls, can move sparsity-based estimates by two standard errors or more. Second, we develop two tests of the sparsity assumption by comparing sparsity-based estimators with OLS. The tests tend to reject the sparsity assumption in all three applications. Unless the number of regressors is comparable to or exceeds the sample size, OLS yields more robust inference at little efficiency cost.

Date: 2023-11, Revised 2026-05
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