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Common errors : How to (and Not to) Control for Unobserved Heterogeneity
Controlling for unobserved heterogeneity (or "common errors"), such as industry-specific shocks, is a fundamental challenge in empirical research. This paper discusses the limitations of two approaches widely used in corporate finance and asset pricing research: demeaning the dependent variable with respect to the group (e.g., "industry-adjusting") and adding the mean of the group's dependent variable as a control. We show that these methods produce inconsistent estimates and can distort inference. In contrast, the fixed effects estimator is consistent and should be used instead. We also explain how to estimate the fixed effects model when traditional methods are computationally infeasible.
Ketersediaan
| Call Number | Location | Available |
|---|---|---|
| TRFS2702 | PSB lt.dasar - Pascasarjana | 1 |
| Penerbit | Oxford: Oxford University Press 2014 |
|---|---|
| Edisi | Vol. 27 No. 2, Feb 2014 |
| Subjek | Asset pricing Trading volume Bond interest rates |
| ISBN/ISSN | 1465-7368 |
| Klasifikasi | NONE |
| Deskripsi Fisik | 661 p. |
| Info Detail Spesifik | The Review of Financial Studies |
| Other Version/Related | Tidak tersedia versi lain |
| Lampiran Berkas |