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Identification of Marginal Effects in a Nonparametric Correlated Random Effects Model

38 Pages Posted: 12 Sep 2007  

Alan Bester

University of Chicago Graduate School of Business

Christian Hansen

University of Chicago - Booth School of Business - Econometrics and Statistics

Date Written: August 2006

Abstract

In this paper, we consider identification and estimation of average marginal effects in a correlated random coefficients model without imposing strong functional form assumptions on the structural likelihood or the mixing distribution. Identification is achieved through imposing that the mixing distribution depends on observed covariates only through an index function and the assumption that at least three time periods are available for each cross sectional unit. We leave the functional form of the index function unrestricted subject to smoothness conditions. We present identification results for this model and consider estimation of the marginal effects of interest. We illustrate the use of the approach through a brief empirical example which considers the relationship between insider trading activity and trading volume.

Keywords: index, sufficient statistic, insider trading

JEL Classification: C14, C23

Suggested Citation

Bester, Alan and Hansen, Christian, Identification of Marginal Effects in a Nonparametric Correlated Random Effects Model (August 2006). Available at SSRN: https://ssrn.com/abstract=1012621 or http://dx.doi.org/10.2139/ssrn.1012621

Alan Bester (Contact Author)

University of Chicago Graduate School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1714 (Phone)

Christian Hansen

University of Chicago - Booth School of Business - Econometrics and Statistics ( email )

Chicago, IL 60637
United States
773-834-1702 (Phone)

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