Re: Clustered Standard Errors
Posted: Fri Apr 27, 2018 10:00 am
Thank you Glenn!
I then noticed from reading other reply of yours here in the forum that in fact the cross section estimators address clustering by time and period estimators address clustering by cross section, as you say.
I have few time periods (12) and plenty of firms (over 2600), but I tested clustering by firm and year and SEs were higher when clustering by time (and pretty much unchanged when clustering by firm), which led me to conclude that perhaps (and following Petersen in "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches") clustering by time would be best.
Therefore, I'm considering using the cross section estimators you have under the "coef covariance method", which I reckon are robust to heterosckedasticity and cross section dependence (from what I gathered from the manual). I was trying to decide between white cross section and cross section SUR (PSCE), but couldn't quite undertsnad the practical from the manual. Would both be suitable in my case? What would be the differences?
Thank you very much again, Glenn!
I then noticed from reading other reply of yours here in the forum that in fact the cross section estimators address clustering by time and period estimators address clustering by cross section, as you say.
I have few time periods (12) and plenty of firms (over 2600), but I tested clustering by firm and year and SEs were higher when clustering by time (and pretty much unchanged when clustering by firm), which led me to conclude that perhaps (and following Petersen in "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches") clustering by time would be best.
Therefore, I'm considering using the cross section estimators you have under the "coef covariance method", which I reckon are robust to heterosckedasticity and cross section dependence (from what I gathered from the manual). I was trying to decide between white cross section and cross section SUR (PSCE), but couldn't quite undertsnad the practical from the manual. Would both be suitable in my case? What would be the differences?
Thank you very much again, Glenn!