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RE: st: RE: Cluster standard errors by time and firm


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: RE: Cluster standard errors by time and firm
Date   Mon, 11 Jun 2012 16:42:45 +0100

Sebastiaan,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> sebas nicaise
> Sent: Monday, June 11, 2012 3:52 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: RE: st: RE: Cluster standard errors by time and firm
> 
> My bad,I was refering to Petersen (2009) ''Estimating 
> standard errors in finance panel data sets: Comparing approaches''

As Maarten says, you should provide a full reference - not just a title.

> Where he argues that to control for serial correlation in 
> estimating SEs, they should be clustered by firm and quarter.

Do you (does he) mean clustering by "firm-quarters"?  Or 2-way
clustering by firm and quarter?

Taken at face value, the recommendation does not make sense, since
clustering by firm automatically accommodates within-firm serial
correlation.  You have 7000 firms, so the asymptotics required for
clustering on firm alone shouldn't be a problem.

And you have only 40 time periods (quarters?) and you are using
4-quarter differences, so the asymptotics needed for clustering on time
alone, or as part of 2-way clustering, probably would be a problem.

My guess is that Petersen's recommendation is either something else, or
is a recommendation for dealing with a different or expanded problem.
For example, it might be a recommendation to deal with serial
correlation + contemporaneous correlations across firms.  That is a
problem that 2-way clustering can address, but since you don't have very
many observations in the T dimension it could be problematic.

--Mark

> 
> My apologies :)
> ----------------------------------------
> > Date: Mon, 11 Jun 2012 16:40:41 +0200
> > Subject: Re: st: RE: Cluster standard errors by time and firm
> > From: maartenlbuis@gmail.com
> > To: statalist@hsphsun2.harvard.edu
> >
> > On Mon, Jun 11, 2012 at 4:35 PM, Maarten Buis wrote:
> > > You obviously should also read Cox (2012).
> >
> > This is deliberately obscure to illustrate the point that it is
> > necessary to give full references in order for an interdisciplinary
> > list like statalist to function.
> >
> > It is the Statalist FAQ that was meant with Cox (2012). To quote the
> > Statalist FAQ (a link is given at the bottom of every post to
> > statalist): "Precise literature references please! Please do not
> > assume that the literature familiar to you is familiar to 
> all members
> > of Statalist. Do not refer to publications with just minimal details
> > (e.g., author and date). Questions of the form "Has anyone 
> implemented
> > the heteroscedasticity under a full moon test of Sue, Grabbit, and
> > Runne (1989)?" admittedly divide the world. Anyone who has not heard
> > of the said test would not be helped by the full reference to answer
> > the question, but they might well appreciate the full reference."
> >
> > -- Maarten
> >
> > --------------------------
> > Maarten L. Buis
> > Institut fuer Soziologie
> > Universitaet Tuebingen
> > Wilhelmstrasse 36
> > 72074 Tuebingen
> > Germany
> >
> >
> > http://www.maartenbuis.nl
> > --------------------------
> >
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