Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches

Posted: 3 Jan 2009

Multiple version iconThere are 3 versions of this paper

Date Written: January 2009

Abstract

In corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms or across time, and OLS standard errors can be biased. Historically, researchers in the two literatures have used different solutions to this problem. This paper examines the different methods used in the literature and explains when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.

Keywords: G12, G3, C01, C15

Suggested Citation

Petersen, Mitchell A., Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches (January 2009). The Review of Financial Studies, Vol. 22, Issue 1, pp. 435-480, 2009. Available at SSRN: https://ssrn.com/abstract=1320561 or http://dx.doi.org/hhn053

Mitchell A. Petersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

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