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From |
"Justina Fischer" <JAVFischer@gmx.de> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests |

Date |
Mon, 23 Jan 2012 16:18:57 +0100 |

Hi Andreas 1) true. This is why you should always consult several test stats (incl. t-stats, F-stats, Shea R2, robust-to-weak instr. stats, etc.) to get an overall picture. Selecting instruments is a hard and complex business... 2) reduncancy tests make only sense when you have managed to select good instruments (it is based on the Sargan/Hansen-J test, if I recall well -> consult ivreg2 help file). 3) practice shows it is in most cases to have no of instruments > endogenous regressors, but not too many in absolute number. For one endogenous regressor, I usually try to find three instruments. You can increase the number of instruments artificially by doing some non-linear stuff, e.g. using a quadratic term. Best, justina -------- Original-Nachricht -------- > Datum: Mon, 23 Jan 2012 15:59:27 +0100 > Von: andreas.zweifel@uzh.ch > An: statalist@hsphsun2.harvard.edu > Betreff: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests > Hi Justina, > > thank you for the intuitive ideas with respect to the quality of the > instruments. > > So I was wrong with my notion that one should have as many instruments as > endogenous variables in the regression. But I can tell you that I have > already tested my model with one endogenous regressor under overidentification, > that is with a whole set of instruments. The Sargan test statistic using > -ivreg2- (or -ivreg28- in Stata8) is clearly not significant then, so the > null that the instruments are exogenous cannot be rejected. However, I fear > that this is weak evidence especially for my setting, because > > 1) To my knowlegde, Sargan only allows to test whether the instruments are > *jointly* exogenous. It does yield no information about the strength of > one single instrument. > > 2) Using the -redundant- option in -ivreg2-, I get contradictory results. > I tried a sensitivity test with a varying number of possibly good > instruments and control variables to find the following: Virtually every instrument > candidate yields a more or less significant p-value for the redundancy test > if combined with many > other excluded instruments but few control variables. But reducing the > number of instruments or increasing > the number of controls in the regression model, the remaining instruments > seem to become more redundant as well. > I don't know what is to be held of an instruments relevance test which > reacts thus sensitively to minor changes in the model specification. > > > Best, > Andreas > > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > An: statalist@hsphsun2.harvard.edu > Von: "Justina Fischer" > Gesendet von: owner-statalist@hsphsun2.harvard.edu > Datum: 21.01.2012 01:35 > Betreff: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from > endogeneity tests > > HI Andreas, > > there are no 'right' instrumentsas such: there are only good ones (valid, > strong) and bad ones. Imagine ´good´ and ´bad´ being on a continuous > scale: most instruments are somwhere on this scale, but rarely at the > extreme. > > now to the Sargan: > "The Sargan test statistic [...] [is] under the null that the error term > is uncorrelated with the instruments." > source: http://en.wikipedia.org/wiki/Instrumental_variable > > so you want a p-value > 0.10 > > no rejection is what you want: the null means you have good instruments. > > I recommend to use ivreg2 whih allows you to test the redundany of > instruments. > > Best > Justina > > > -------- Original-Nachricht -------- > > Datum: Fri, 20 Jan 2012 21:22:54 +0100 > > Von: andreas.zweifel@uzh.ch > > An: statalist@hsphsun2.harvard.edu > > Betreff: Antwort: Re: Antwort: Re: RE: st: Spurious inference from > endogeneity tests > > > Hi > > > > I think you are quite right, and my intuition also tells me something > > else. Let's assume I have only one endogenous regressor, > > but more than one instrument candidates since there is no theoretical > > foundation for choosing the 'right' instruments for the > > endogenous variable. If I include all of these instruments and the > > -overid- test statistic is still not significant, there is > > likely something wrong with the instruments. This is because theory > claims > > that one instrument should suffice here, and each > > additional instrument included merely increases the standard deviation > of > > the IV estimator. As a consequence, the model must > > be overidentified from a theoretical view. However, if the Sargan test > > fails to detect overidentification, this can only be > > due to the fact that the selected instruments are quite weak... > > > > Best, > > Andreas > > > > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > > An: statalist@hsphsun2.harvard.edu > > Von: "Justina Fischer" > > Gesendet von: owner-statalist@hsphsun2.harvard.edu > > Datum: 19.01.2012 23:22 > > Betreff: Re: Antwort: Re: RE: st: Spurious inference from endogeneity > > tests > > > > nope.. the bias could turn the direction of observed influence - how do > > you know then which one is correct (OLS or IV)? > > > > Rule of thumb is: better no instrument (OLS) than weak ones !! > > > > it is sufficient to provide good convincing arguments why you selected > the > > instruments; there is no need for theoretical models suggesting the > > instrument explicitly. Let your phantasy work ! > > > > Cheers > > Justina > > > > -------- Original-Nachricht -------- > > > Datum: Thu, 19 Jan 2012 23:00:00 +0100 > > > Von: andreas.zweifel@uzh.ch > > > An: statalist@hsphsun2.harvard.edu > > > Betreff: Antwort: Re: RE: st: Spurious inference from endogeneity > tests > > > > > Thanks for this clarifying remark. > > > > > > In addition, literature always stresses the requirement that > > > IVs should be selected in line with theoretically motivated > > > arguments. But economic theory may sometimes be limited in its > > > capability to yield valid instruments. However, when instruments > > > are therefore weak, I expect the bias of the IV estimator to be > > > similarly large as the OLS estimator. Maybe then it would make > > > sense to prefer one of the two estimators in terms of theory > > > driven expectations as the lesser evil? > > > > > > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- > > > An: statalist@hsphsun2.harvard.edu > > > Von: Austin Nichols > > > Gesendet von: owner-statalist@hsphsun2.harvard.edu > > > Datum: 18.01.2012 16:37 > > > Betreff: Re: RE: st: Spurious inference from endogeneity tests > > > > > > In re > > > the poster's central question: > > > "I have to conclude from my specification tests that my coefficient > > > estimates from both OLS and 2SLS cannot be interpreted because 2SLS > > > does not succeed in resolving the endogeneity problem?" > > > I would answer yes. Without better instruments, you have learned > > > nothing from 2SLS, including whether OLS is biased or not. The overID > > > test is no good if you don't have strong instruments, since its > > > failure to reject the overID restrictions could be due merely to the > > > weakness of your excluded instruments. > > > > > > On Tue, Jan 17, 2012 at 6:44 PM, Justina Fischer <JAVFischer@gmx.de> > > > wrote: > > > > wow. I am deeply impressed :-) > > > > > > > > Let us hope the authors provide user-written Stata commands soon.... > > > > > > > > justina > > > > -------- Original-Nachricht -------- > > > >> Datum: Tue, 17 Jan 2012 18:41:27 -0500 > > > >> Von: Cameron McIntosh <cnm100@hotmail.com> > > > >> An: STATA LIST <statalist@hsphsun2.harvard.edu> > > > >> Betreff: RE: st: Spurious inference from endogeneity tests > > > > > > > >> The following papers will also be helpful: > > > >> Murray, M.P. (2006). Avoiding Invalid Instruments and Coping with > > Weak > > > >> Instruments. Journal of Economic Perspectives, 20(4), > > > >> > > > > > > 111-132.http://www.eui.eu/Personal/Guiso/Courses/Econometrics/Murray_IV_jep_06.pdf > > > >> > > > >> Chao, J.C., & Swanson, N.R. (2005). Consistent estimation with a > > large > > > >> number of weak instruments. Econometrica, 73(5), > > > >> > > > > > > 1673–1692.http://gemini.econ.umd.edu/jrust/econ623/files/chao_swanson_econometrica.pdf > > > >> > > > >> Nevo, A., & Rosen, A.M. (2010). Identification with Imperfect > > > Instruments. > > > >> The Review of Economics and Statistics, Accepted for publication. > > > >> > > > >> Kolesár, M., Chetty, R., Friedman, J.N., Glaeser, E.L., & Imbens, > > G.W. > > > >> (October 2011). Identification and Inference with Many Invalid > > > Instruments. > > > >> NBER Working Paper No. 17519. http://www.nber.org/papers/w17519 > > > >> > > > >> Cam > > > >> > Date: Wed, 18 Jan 2012 00:06:34 +0100 > > > >> > From: JAVFischer@gmx.de > > > >> > Subject: Re: st: Spurious inference from endogeneity tests > > > >> > To: statalist@hsphsun2.harvard.edu > > > >> > > > > >> > Hi Andreas > > > >> > > > > >> > for judging whether instruments are weak or not I would as first > > step > > > >> look into the first stage regression results, look at the Shea R2, > > the > > > F-test > > > >> on the instruments, the single estimates....that tells you already > a > > > lot. > > > >> Maybe use ivreg2. > > > >> > > > > >> > Maybe you have only one weak instrument in a set of instruments > you > > > >> should exclude (so the set is then strong, even though one single > > weak > > > >> instrument may bias your results) > > > >> > > > > >> > Best > > > >> > > > > >> > Justina > > > >> > > > > >> > > > > >> > -------- Original-Nachricht -------- > > > >> > > Datum: Tue, 17 Jan 2012 22:12:36 +0100 > > > >> > > Von: andreas.zweifel@uzh.ch > > > >> > > An: statalist@hsphsun2.harvard.edu > > > >> > > Betreff: st: Spurious inference from endogeneity tests > > > >> > > > > >> > > Dear Statausers, > > > >> > > > > > >> > > I am concerned with an endogeneity problem in my sample of 126 > > > firms > > > >> when > > > >> > > investigating the relationship between managerial disclosure > and > > > cost > > > >> of > > > >> > > capital effects. After running the ivreg28 command, the > > > Cragg-Donald > > > >> test > > > >> > > F-statistic is 2.27, which indicates that my instruments are > > rather > > > >> weak. > > > >> > > However, my model appears to be correctly identified, because > the > > > >> Anderson test > > > >> > > statistic for the first stage equation yields a p-value lower > > than > > > >> 0.01 > > > >> > > and the Sargan test statistic is insignificant (p-value = > 0.59). > > > Since > > > >> my > > > >> > > instruments have passed the overidentification test, I run the > > > ivendog > > > >> command > > > >> > > which is equivalent to a Hausman test. Again, the test > statistic > > is > > > >> > > insignificant (p-value = 0.48). > > > >> > > > > > >> > > If I compare OLS and 2SLS, I find that only the former yields a > > > >> > > significant coefficient of managerial disclosure in the model > > > >> regressing cost of > > > >> > > capital on managerial disclosure. Considering the specification > > > tests > > > >> above, it > > > >> > > seems unlikely that 2SLS is an improvement over OLS. Thus I > > assume > > > >> that I > > > >> > > can take the OLS estimates for causal inference. Is this > correct? > > > If > > > >> yes, > > > >> > > the point why I should not use 2SLS is likely due to the > weakness > > > of > > > >> the > > > >> > > instruments and the small-sample bias. So I have to conclude > from > > > my > > > >> > > specification tests that my coefficient estimates from both OLS > > and > > > >> 2SLS cannot be > > > >> > > interpreted because 2SLS does not succeed in resolving the > > > endogeneity > > > >> > > problem? > > > > > > * > > > * For searches and help try: > > > * http://www.stata.com/help.cgi?search > > > * http://www.stata.com/support/statalist/faq > > > * http://www.ats.ucla.edu/stat/stata/ > > > * > > > * For searches and help try: > > > * http://www.stata.com/help.cgi?search > > > * http://www.stata.com/support/statalist/faq > > > * http://www.ats.ucla.edu/stat/stata/ > > > > -- > > Justina AV Fischer, PhD > > COFIT Fellow > > World Trade Institute > > University of Bern > > > > homepage: http://www.justinaavfischer.de/ > > e-mail: javfischer@gmx.de. justina.fischer@wti.org > > papers: http://ideas.repec.org/e/pfi55.html > > > > > > * > > * For searches and help try: > > * http://www.stata.com/help.cgi?search > > * http://www.stata.com/support/statalist/faq > > * http://www.ats.ucla.edu/stat/stata/ > > * > > * For searches and help try: > > * http://www.stata.com/help.cgi?search > > * http://www.stata.com/support/statalist/faq > > * http://www.ats.ucla.edu/stat/stata/ > > -- > Justina AV Fischer, PhD > COFIT Fellow > World Trade Institute > University of Bern > > homepage: http://www.justinaavfischer.de/ > e-mail: javfischer@gmx.de. justina.fischer@wti.org > papers: http://ideas.repec.org/e/pfi55.html > > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ -- Justina AV Fischer, PhD COFIT Fellow World Trade Institute University of Bern homepage: http://www.justinaavfischer.de/ e-mail: javfischer@gmx.de. justina.fischer@wti.org papers: http://ideas.repec.org/e/pfi55.html * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Antwort: Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Re: Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*Suryadipta Roy <sroy2138@gmail.com>

**References**:**Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Re: RE: st: Spurious inference from endogeneity tests***From:*Austin Nichols <austinnichols@gmail.com>

**st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Re: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**RE: st: Spurious inference from endogeneity tests***From:*Cameron McIntosh <cnm100@hotmail.com>

**Re: RE: st: Spurious inference from endogeneity tests***From:*"Justina Fischer" <JAVFischer@gmx.de>

**Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

**Antwort: Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests***From:*andreas.zweifel@uzh.ch

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