Consistent Covariance Matrix Estimation with Cross-Sectional Dependence and Heteroskedasticity in Cross-Sectional Financial Data / Kenneth A. Froot.

Format:

Book

Author/Creator:

Froot, Kenneth A.

Contributor:

National Bureau of Economic Research.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0062.

NBER technical working paper series no. t0062

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1990.

Summary:

This paper provides a simple method to account for heteroskesdasticity and cross-sectional dependence in samples with large cross sections and relatively few time series observations. The estimators we derive are motivated by cross-sectional regression studies in finance and accounting. Simulation evidence suggests that the estimators are dependable in small samples and may be useful when generalized least squares is infeasible, unreliable, or computationally too burdensome. The approach allows a relatively small number of time series observations to yield a rich characterization of cross-sectional correlations. We also consider efficiency issues and show that in principle asymptotic efficiency can be improved using a technique due to Cragg (1983).

Notes:

Print version record

March 1990.