LM Test of Neglected Correlated Random Effects and Its Application. Issue 3 (3rd July 2017)

• Record Type: Journal Article
• Authors: Hahn, Jinyong; Moon, Hyungsik Roger; Snider, Connan
• Is Part Of: Journal of business & economic statistics. Volume 35:Issue 3(2017)
• Page Start: 359
• Page End: 370
• Publication Date: 2017-07-03
• Subjects: Correlated random effects -- LM test of overdispersion -- Multiplicity of equilibrium; Economics -- Statistical methods -- Periodicals; Commercial statistics -- Periodicals; Économie politique -- Méthodes statistiques -- Périodiques; Statistique commerciale -- Périodiques; 330.015195
• DOI: 10.1080/07350015.2015.1063426
• Languages: English
• ISSNs: 0735-0015

Abstract

Abstract : This article aims at achieving two distinct goals. The first is to extend the existing LM test of overdispersion to the situation where the alternative hypothesis is characterized by the correlated random effects model. We obtain a result that the test against the random effects model has a certain max-min type optimality property. We will call such a test the LM test of overdispersion. The second goal of the article is to draw a connection between panel data analysis and the analysis of multiplicity of equilibrium in games. Because such multiplicity can be viewed as a particular form of neglected heterogeneity, we propose an intuitive specification test for a class of two-step game estimators.