Pötscher, Benedikt M. and Preinerstorfer, David (2021): Valid Heteroskedasticity Robust Testing.
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Abstract
Tests based on heteroskedasticity robust standard errors are an important technique in econometric practice. Choosing the right critical value, however, is not simple at all: Conventional critical values based on asymptotics often lead to severe size distortions; and so do existing adjustments including the bootstrap. To avoid these issues, we suggest to use smallest sizecontrolling critical values, the generic existence of which we prove in this article for commonly used test statistics. Furthermore, sufficient and often also necessary conditions for their existence are given that are easy to check. Granted their existence, these critical values are the canonical choice: larger critical values result in unnecessary power loss, whereas smaller critical values lead to overrejections under the null hypothesis, make spurious discoveries more likely, and thus are invalid. We suggest algorithms to numerically determine the proposed critical values and provide implementations in accompanying software. Finally, we numerically study the behavior of the proposed testing procedures, including their power properties.
Item Type:  MPRA Paper 

Original Title:  Valid Heteroskedasticity Robust Testing 
Language:  English 
Keywords:  Heteroskedasticity, Robustness, Tests, Size of a test 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C12  Hypothesis Testing: General C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C14  Semiparametric and Nonparametric Methods: General C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C20  General 
Item ID:  115483 
Depositing User:  Benedikt Poetscher 
Date Deposited:  29 Nov 2022 14:25 
Last Modified:  29 Nov 2022 14:25 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/115483 
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