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Testing for sphericity in a two-way error components panel data model

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  • Guangyu Mao

Abstract

This article is concerned with sphericity test for the two-way error components panel data model. It is found that the John statistic and the bias-corrected LM statistic recently developed by Baltagi et al. (2011)Baltagi et al. (2012, which are based on the within residuals, are not helpful under the present circumstances even though they are in the one-way fixed effects model. However, we prove that when the within residuals are properly transformed, the resulting residuals can serve to construct useful statistics that are similar to those of Baltagi et al. (2011)Baltagi et al. (2012). Simulation results show that the newly proposed statistics perform well under the null hypothesis and several typical alternatives.

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  • Guangyu Mao, 2018. "Testing for sphericity in a two-way error components panel data model," Econometric Reviews, Taylor & Francis Journals, vol. 37(5), pages 491-506, May.
    • Handle: RePEc:taf:emetrv:v:37:y:2018:i:5:p:491-506
    DOI: 10.1080/07474938.2015.1092844
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    Cited by:

    1. Peng, Bin & Shen, Xinyuan & Ye, Jinqi, 2019. "Testing for sphericity in a fixed effects panel data model with time-varying variances," Economics Letters, Elsevier, vol. 181(C), pages 85-89.
    2. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.

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