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Re: RE: st: Spurious inference from endogeneity tests


From   "Justina Fischer" <JAVFischer@gmx.de>
To   statalist@hsphsun2.harvard.edu
Subject   Re: RE: st: Spurious inference from endogeneity tests
Date   Wed, 18 Jan 2012 18:12:41 +0100

Hi

user-written command rivtest provides robust-to-weak-instruments test statistics - what you might need here (of course it is always better to search for stronger instruments in first place). 

See also the accompanying paper:
http://econ.tulane.edu/RePEc/pdf/tul0901.pdf


-------- Original-Nachricht --------
> Datum: Wed, 18 Jan 2012 10:36:55 -0500
> Von: Austin Nichols <austinnichols@gmail.com>
> An: statalist@hsphsun2.harvard.edu
> 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?
> 
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-- 
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


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