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  • Standard Errors: Joseph T. Halford

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    This document discusses standard errors for panel regressions. It recommends using White's robust standard errors for cross-sectional regressions. For panel regressions, it suggests clustering standard errors by firm for models with firm fixed effects, using Fama-MacBeth standard errors for models with time effects only, and clustering by both firm and time for models with both firm and time effects. It notes that clustering by firm times time may produce similar results to clustering by both as Compustat data typically has many firm clusters.

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    This document discusses standard errors for panel regressions. It recommends using White's robust standard errors for cross-sectional regressions. For panel regressions, it suggests clustering standard errors by firm for models with firm fixed effects, using Fama-MacBeth standard errors for models with time effects only, and clustering by both firm and time for models with both firm and time effects. It notes that clustering by firm times time may produce similar results to clustering by both as Compustat data typically has many firm clusters.

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    14 views2 pages

    Standard Errors: Joseph T. Halford

    Uploaded by

    Mike Liu
    This document discusses standard errors for panel regressions. It recommends using White's robust standard errors for cross-sectional regressions. For panel regressions, it suggests clustering standard errors by firm for models with firm fixed effects, using Fama-MacBeth standard errors for models with time effects only, and clustering by both firm and time for models with both firm and time effects. It notes that clustering by firm times time may produce similar results to clustering by both as Compustat data typically has many firm clusters.

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    Introduction

    Standard Errors

    Joseph T. Halford

    University of Wisconsin Milwaukee

    November 30, 2014

    Joseph T. Halford Standard Errors


    Introduction

    Cross-sectional regressions: use White’s robust SE’s

    Table 1 : Panel Standard-errors

    Firm-effect Time-effect Firm and Time


    Constant Cluster (firm) Fama-McBeth Time dummies
    or and
    Firm FE Cluster(firm)
    Non-constant Cluster(firm) Fama-McBeth Cluster(firm× time)
    or
    Cluster(firm)*

    *If the panel has a large amount of clusters this will produce similar
    SEs to clustering by both firm and time. Typical cross-sectional
    regressions using Compustat data have a large number of firms.

    Joseph T. Halford Standard Errors

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