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Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches

Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches,10.1093/rfs/hhn053,Review of Financial Studies,Mitchell A. Petersen

Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches   (Citations: 546)
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In corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms or across time, and OLS standard errors can be biased. Historically, researchers in the two literatures have used different solutions to this problem. This paper examines the different methods used in the literature and explains when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.
Journal: Review of Financial Studies - REV FINANC STUD , vol. 22, no. 1, pp. 435-480, 2009
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    • ...Modern econometric theory points out that OLS regressions and White standard errors will be biased when the residuals are not independent (Petersen 2009)...
    • ...In this situation, the standard errors clustered by firm are unbiased whether the firm effect is permanent or temporary (Petersen 2009)...

    Haizhi WangRobertet al. Strategic alliances by venture capital backed firms: an empirical exam...

    • ...standard errors are clustered by firm (see Petersen, 2009), although robust-White standard errors produce similar results...

    David C. Linget al. Real Estate Ownership, Leasing Intensity, and Value: Do Stock Returns ...

    • ...where CARw,j indicates the CARs for a particular window [CAR(1,60), CAR (�1,60), CAR(�60,60)] for each firm j. Standard errors are corrected for potential heteroscedasticity (White 1980), dependence within observations of a firm across time, and dependence within a quarter across firms, following the methodology outlined in Petersen (2009)...
    • ...This table provides results for cross-sectional regressions of CARs on SURP, REIT, REIT*SURP, SIZE and BM for the drift window (Panel A), the announcement window (Panel B), and the full 121 day window (Panel C). Standard errors are adjusted for heteroscedasticity following White (1980) and for clustering by firm and quarter following Petersen (2009)...

    S. McKay Priceet al. Information Uncertainty and the Post-Earnings-Announcement Drift Anoma...

    • ...As recommended by Peterson (2009), we apply the various estimation techniques to our data in order to assess the robustness of the key variables’ significance to multiple corrections on the standard errors...

    Mohamed Saadi. Export sophistication and the terms of trade of the developing and eme...

    • ...White (1980). However, since White’s standard errors are not robust to dependence within observations of a firm across time, or within a quarter across firms, we cluster by firm (165) and by quarter (16) to adjust for potential firm- and time- effects, respectively, using the methodology outlined in Petersen (2009)...
    • ...Standard errors are adjusted for heteroscedasticity following White(1980) and for clustering by firm and quarter following Petersen (2009)...
    • ...Petersen (2009). t-statistics are in parentheses...

    James S. Doranet al. Earnings Conference Call Content and Stock Price: The Case of REITs

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