arXiv 10 Mar 2021 · Econometrics · 1 citations (OpenAlex)
arXiv:2103.06075 · PDF · DOI · OpenAlex · Extracted main text
This paper reexamines the seminal Lagrange multiplier test for cross-section independence in a large panel model where both the number of cross-sectional units n and the number of time series observations T can be large. The first contribution of the paper is an enlargement of the test with two extensions: firstly the new asymptotic normality is derived in a simultaneous limiting scheme where the two dimensions (n, T) tend to infinity with comparable magnitudes; second, the result is valid for general error distribution (not necessarily normal). The second contribution of the paper is a new test statistic based on the sum of the fourth powers of cross-section correlations from OLS residuals, instead of their squares used in the Lagrange multiplier statistic. This new test is generally more powerful, and the improvement is particularly visible against alternatives with weak or sparse cross-section dependence. Both simulation study and real data analysis are proposed to demonstrate the advantages of the enlarged Lagrange multiplier test and the power enhanced test in comparison with the existing procedures.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | M Hashem Pesaran (2004) General diagnostic tests for cross section dependence in panels | 1.000 | 6 | 3 | 100% |
| 2 | M Hashem Pesaran, Aman Ullah, and Takashi Yamagata (2008) A bias-adjusted LM test of error cross-section independence | 0.928 | 4 | 3 | 100% |
| 3 | Badi H Baltagi, Qu Feng, and Chihwa Kao (2012) A Lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model | 0.737 | 3 | 2 | 100% |
| 4 | Trevor S Breusch and Adrian R Pagan (1980) The Lagrange multiplier test and its applications to model specification in econometrics | 0.737 | 3 | 2 | 100% |
| 5 | Natalia Bailey, Dandan Jiang, and Jianfeng Yao (2020) A Lagrange-Multiplier test for large heterogeneous panel data models self | 0.737 | 3 | 2 | 100% |
| 6 | Badi H Baltagi, Chihwa Kao, and Fa Wang (2017) Asymptotic power of the sphericity test under weak and strong factors in a fixed effects panel data model | 0.644 | 2 | 2 | 100% |
| 7 | James R Schott (2005) Testing for complete independence in high dimensions | 0.644 | 2 | 2 | 100% |
| 8 | J. Yao, S. Zheng, and Z. Bai (2015) Large Sample Covariance Matrices and High-dimensional Data Analysis | 0.405 | 1 | 1 | 100% |
| 9 | Badi H Baltagi, Qu Feng, and Chihwa Kao (2011) Testing for sphericity in a fixed effects panel data model | 0.405 | 1 | 1 | 100% |
| 10 | Alexander Chudik, M Hashem Pesaran, and Elisa Tosetti (2011) Weak and strong cross-section dependence and estimation of large panels | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 16 scored citations.