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Testing for Sphericity in a Fixed Effects Panel Data Model (Revised July 2009)

Badi Baltagi (), Qu Feng () and Chihwa Kao ()

No 112, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper proposes a test for sphericity in a fixed effects panel data model. It uses the Random Matrix Theory based approach of Ledoit and Wolf (2002) to test for sphericity of the error terms in a fixed effects panel model with a large number of cross-sectional units and time series observations. Since the errors are unobservable, the residuals from the fixed effects regression are used. The limiting distribution of the proposed test statistic is derived. Additionally, its finite sample properties are examined using Monte Carlo simulations.

Keywords: Sphericity; panel data; cross-sectional dependence; John test (search for similar items in EconPapers)
JEL-codes: C13 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-geo
Date: 2009-07
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Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:112

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