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Testing for heteroskedasticity in fixed effects models

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  • Juhl, Ted
  • Sosa-Escudero, Walter

Abstract

We derive tests for heteroskedasticity after fixed effects estimation of linear panel models. The asymptotic results are based on a ‘large N–fixed T’ framework, where the incidental parameters problem is bypassed by utilizing a (pseudo) likelihood function conditional on the sufficient statistic for these parameters. A simple ‘studentization’ produces distribution free tests that can easily be implemented using an artificial regression based on residuals after fixed effects estimation. A Monte Carlo exploration suggests that the tests perform well in small samples such as those encountered in practice.

Suggested Citation

  • Juhl, Ted & Sosa-Escudero, Walter, 2014. "Testing for heteroskedasticity in fixed effects models," Journal of Econometrics, Elsevier, vol. 178(P3), pages 484-494.
    • Handle: RePEc:eee:econom:v:178:y:2014:i:p3:p:484-494
    DOI: 10.1016/j.jeconom.2013.07.005
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    More about this item

    Keywords

    Heteroskedasticity; Panel data;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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