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A Nonlinear Panel Model of Cross-sectional Dependence

Author

Listed:
  • George Kapetanios

    (Queen Mary, University of London)

  • James Mitchell

    (NIESR)

  • Yongcheol Shin

    (University of Leeds)

Abstract

This paper proposes a new panel model of cross-sectional dependence. The model has a number of potential structural interpretations that relate to economic phenomena such as herding in financial markets. On an econometric level it provides a flexible approach to the modelling of interactions across panel units and can generate endogenous cross-sectional dependence that can resemble such dependence arising in a variety of existing models such as factor or spatial models. We discuss the theoretical properties of the model and ways in which inference can be carried out. We supplement this analysis with a detailed Monte Carlo study and two empirical illustrations.

Suggested Citation

  • George Kapetanios & James Mitchell & Yongcheol Shin, 2010. "A Nonlinear Panel Model of Cross-sectional Dependence," Working Papers 673, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:673
    as

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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2010/items/wp673.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cross-sectional dependence; Nonlinearity; Factor models; Panel models; Fixed effects;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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