Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 99, Issue 1, Pages 1-10Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2010.08.016
Keywords
Cluster standard errors; Panel data; Finance panel data
Categories
Ask authors/readers for more resources
When estimating finance panel regressions, it is common practice to adjust standard errors for correlation either across firms or across time. These procedures are valid only if the residuals are correlated either across time or across firms, but not across both. This paper shows that it is very easy to calculate standard errors that are robust to simultaneous correlation along two dimensions, such as firms and time. The covariance estimator is equal to the estimator that clusters by firm, plus the estimator that clusters by time, minus the usual heteroskedasticity-robust ordinary least squares (OLS) covariance matrix. Any statistical package with a clustering command can be used to easily calculate these standard errors. (C) 2010 Elsevier B.V. All rights reserved.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available