Estimation and Testing in Panel Data with CrossSection Dependence
Forskningsoutput: Avhandling › Doktorsavhandling (sammanläggning)
Abstract
This thesis makes a contribution the econometrics of panel data with crosssection dependence (CSD). It consists of five selfcontained papers. The most popular approach to account for CSD is to attribute the comovements of observed variables across entities to unobserved common factors and to estimate these factors via simple crosssection averages of the data. The chapters in this thesis investigate the properties of regression estimators that are based on this approach and suggest new tests that rely on crosssection
averages to capture the impact of latent common factors.
Chapter two points out a problem with the Common Correlated Effects (CCE) estimator of Pesaran (2006) that appears in the empirically relevant case when the number of factors is strictly less than the number of observables used in their estimation. Specifically, the use of too many observables causes the second moment matrix of the estimated factors to become asymptotically singular, an issue that has not yet been appropriately accounted for. We show that the dominating method of proving the asymptotic properties of the CCE estimator breaks down in this case and suggest a more general method of proof.
Chapter three develops PANICCA, an approach to panel unit root testing that combines the merits of the two most popular approaches for testing for a unit root in panel data with CSD. We take over the separate treatment of idiosyncratic and common components inherent in the PANIC framework which allows to
determine the source of nonstationarity specifically. In order to decompose the observed data into its two components, we use crosssection averages of all available variables, a simple, yet powerful approach with good small sample properties.
Chapter four considers models where the impact of latent factors converges to zero as the number of individuals tends to infinity. These socalled weak factors constitute a setting for which the two dominating regression estimators for panel data with CSD are not explicitly conceived for. We investigate the
asymptotic properties of these two estimators and set up minimal conditions for the factor strength under which asymptotic normality and consistency can be proven.
Chapter five suggests a Hausman test statistic based on the difference between Pesaran’s (2006) CCE estimator and the OLS estimator. Under the null hypothesis of no crosssection dependence, this difference has a higher rate of convergence than the estimators themselves. As an immediate consequence, the test statistic diverges at a higher rate than the popular CD test of Pesaran (2004) when the data are crosssectionally correlated, thus leading to a test with higher power.
Chapter six provides a simple and userfriendly way of measuring the contribution of different markets on developments in the fundamental price of an asset. We note that standard models for price discovery can be represented in the form of a common factor model and use a decomposition based on crosssection averages to separate idiosyncratic and common components of the observed price series.
averages to capture the impact of latent common factors.
Chapter two points out a problem with the Common Correlated Effects (CCE) estimator of Pesaran (2006) that appears in the empirically relevant case when the number of factors is strictly less than the number of observables used in their estimation. Specifically, the use of too many observables causes the second moment matrix of the estimated factors to become asymptotically singular, an issue that has not yet been appropriately accounted for. We show that the dominating method of proving the asymptotic properties of the CCE estimator breaks down in this case and suggest a more general method of proof.
Chapter three develops PANICCA, an approach to panel unit root testing that combines the merits of the two most popular approaches for testing for a unit root in panel data with CSD. We take over the separate treatment of idiosyncratic and common components inherent in the PANIC framework which allows to
determine the source of nonstationarity specifically. In order to decompose the observed data into its two components, we use crosssection averages of all available variables, a simple, yet powerful approach with good small sample properties.
Chapter four considers models where the impact of latent factors converges to zero as the number of individuals tends to infinity. These socalled weak factors constitute a setting for which the two dominating regression estimators for panel data with CSD are not explicitly conceived for. We investigate the
asymptotic properties of these two estimators and set up minimal conditions for the factor strength under which asymptotic normality and consistency can be proven.
Chapter five suggests a Hausman test statistic based on the difference between Pesaran’s (2006) CCE estimator and the OLS estimator. Under the null hypothesis of no crosssection dependence, this difference has a higher rate of convergence than the estimators themselves. As an immediate consequence, the test statistic diverges at a higher rate than the popular CD test of Pesaran (2004) when the data are crosssectionally correlated, thus leading to a test with higher power.
Chapter six provides a simple and userfriendly way of measuring the contribution of different markets on developments in the fundamental price of an asset. We note that standard models for price discovery can be represented in the form of a common factor model and use a decomposition based on crosssection averages to separate idiosyncratic and common components of the observed price series.
Detaljer
Författare  

Enheter & grupper  
Forskningsområden  Ämnesklassifikation (UKÄ) – OBLIGATORISK
Nyckelord

Originalspråk  engelska 

Kvalifikation  Doktor 
Tilldelande institution  
Handledare/Biträdande handledare 

Tilldelningsdatum  2017 apr 7 
Utgivningsort  Lund 
Förlag 

Tryckta ISBN  9789177531982 
Elektroniska ISBN  9789177531999 
Status  Published  2017 mar 2 
Publikationskategori  Forskning 
Relaterad forskningsoutput
Simon Reese & Joakim Westerlund, 2018 maj 28, I : Econometric Reviews. 37, 5, s. 401465
Forskningsoutput: Tidskriftsbidrag › Artikel i vetenskaplig tidskrift
Joakim Westerlund, Simon Reese & Narayan, P., 2017 jun, I : Oxford Bulletin of Economics and Statistics. 79, 3, s. 366394
Forskningsoutput: Tidskriftsbidrag › Artikel i vetenskaplig tidskrift
Joakim Westerlund, Simon Reese & Karabiyik, H., 2017 mar, I : Journal of Econometrics. 197, 1, s. 6064 5 s.
Forskningsoutput: Tidskriftsbidrag › Artikel i vetenskaplig tidskrift