Testing for sphericity in a fixed effects panel data model

Badi H. Baltagi, Qu Feng, Chihwa Kao

Research output: Contribution to journalArticle

15 Scopus citations

Abstract

This paper proposes a test for the null of sphericity in a fixed effects panel data model. It uses theRandom Matrix Theorybased approach of Ledoit and Wolf to test for the null of sphericity of the error terms in a fixed effects panel model with a large number of cross-sectional units and time series observations. Because the errors are unobservable, the residuals from the fixed effects regression are used. The limiting distribution of the proposed test statistic is derived. In addition, its finite sample properties are examined using Monte Carlo simulations.

Original languageEnglish (US)
Pages (from-to)25-47
Number of pages23
JournalEconometrics Journal
Volume14
Issue number1
DOIs
StatePublished - Feb 1 2011

Keywords

  • Cross-sectional dependence
  • John test
  • Panel data
  • Sphericity

ASJC Scopus subject areas

  • Economics and Econometrics

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