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Murphy-Topel adjustment of the variance-covariance matrix of a two-step panel data model: Evidence from competition-fragility nexus in banking

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  • Ion Lapteacru

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux)

Abstract

We develop the Murphy-Topel adjustment of the variance-covariance matrix for two-step panel data models. We apply it on the competition-fragility nexus in banking with different samples for two equations. Indeed, this issue is often observed in this field of research. A competition measure of banks is constructed for each country (first equation), whereas a risk measure is regressed on the entire sample of countries (second equation). Any statistical adjustment will only provide approximate results for the second equation, because of possible correlations between the results of both models. The Murphy-Topel method eventually seems to be more appropriate.

Suggested Citation

  • Ion Lapteacru, 2016. "Murphy-Topel adjustment of the variance-covariance matrix of a two-step panel data model: Evidence from competition-fragility nexus in banking," Working Papers hal-01337726, HAL.
    • Handle: RePEc:hal:wpaper:hal-01337726
    Note: View the original document on HAL open archive server: https://hal.science/hal-01337726
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    References listed on IDEAS

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    3. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2012. "The relationship between banking market competition and risk-taking: Do size and capitalization matter?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3366-3381.
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    Cited by:

    1. Lapteacru, Ion, 2017. "Market power and risk of Central and Eastern European banks: Does more powerful mean safer?," Economic Modelling, Elsevier, vol. 63(C), pages 46-59.

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    More about this item

    Keywords

    Banking; Murphy-Topel adjustment; competition; risk.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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