panel data, heteroskedasticity, Lagrange multiplier tests, error components, Monte Carlo simulations
Statistics and Probability
This paper considers a general heteroskedastic error component model using panel data, and derives a joint LM test for homoskedasticity against the alternative of heteroskedasticity in both error components. It contrasts this joint LM test with marginal LM tests that ignore the heteroskedasticity in one of the error components. Monte Carlo results show that misleading inference can occur when using marginal rather than joint tests when heteroskedasticity is present in both components.
Baltagi, Badi H.; Bresson, Georges; and Pirotte, Alain, "Joint LM Test for Homoskedasticity in a One-Way error Component Model" (2005). Center for Policy Research. 92.
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