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Consistent Covariance Matrix Estimation with Cross-Sectional Dependence and Heteroskedasticity in Financial Data
Abstract
This paper provides a simple method to account for heteroskedasticity and cross-sectional dependence in samples with large cross sections and relatively few time-series observations. The method is motivated by cross-sectional regression studies in finance and accounting. Simulation evidence suggests that these estimators are dependable in small samples and may be useful when generalized least squares is infeasible, unreliable, or computationally too burdensome. We also consider efficiency issues and show that, in principle, asymptotic efficiency can be improved using a technique due to Cragg (1983).
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Citations
Cited by
Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data
Driscoll, J. C., & Kraay, A. C. (1998) · Review of Economics and Statistics · doi:10.1162/003465398557825 · Cited by 6,865
Robust Standard Errors for Panel Regressions with Cross-Sectional Dependence
Hoechle, D. (2007) · The Stata Journal: Promoting communications on statistics and Stata · doi:10.1177/1536867x0700700301 · Cited by 3,333
Event-study methodology under conditions of event-induced variance
Boehmer, E. (1991) · Journal of Financial Economics · doi:10.1016/0304-405x(91)90032-f · Cited by 1,775
A Re‐examination of Disclosure Level and the Expected Cost of Equity Capital
Botosan, C. A., & Plumlee, M. A. (2002) · Journal of Accounting Research · doi:10.1111/1475-679x.00037 · Cited by 1,456
Economic Determinants of Audit Committee Independence
Klein, A. (2002) · The Accounting Review · doi:10.2308/accr.2002.77.2.435 · Cited by 624
Metadata
- Authors
- Froot, K. A.
- Venue
- The Journal of Financial and Quantitative Analysis
- Publisher
- JSTOR
- Published
- 1989-09
- Volume
- 24
- Issue
- 3
- Pages
- 333
- ISSN
- 0022-1090 (ISSN-L)
- OpenAlex
- W2029942536
- Cited by
- 621
- References
- 0
- FWCI
- 9.22
- Type
- journal article
- Language
- en
- Open access
- closed
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- Froot, K. A. (1989). Consistent Covariance Matrix Estimation with Cross-Sectional Dependence and Heteroskedasticity in Financial Data. The Journal of Financial and Quantitative Analysis. https://doi.org/10.2307/2330815
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
