More on the Performance of Higher Order Moment Estimators in Investment Equations

41 Pages Posted: 7 Oct 2010

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Antonio F. Galvao

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: October 7, 2010

Abstract

Almeida, Campello, and Galvao (2010) [ACG] use Monte Carlo simulations and real data to assess the performance of estimators that deal with measurement errors in investment models. ACG are the first to provide an independent assessment of alternative methods, showing when they work properly and discussing the assumptions embedded in them. Erickson and Whited (2010) review ACG's study focusing exclusively on tests involving the Erickson and Whited (2000, 2002) [EW] estimator. While casting doubt on the usefulness of the ACG analysis, Erickson and Whited (2010) develop a number of ex-post fixes for the problems uncovered by ACG. The authors argue that the ACG tests would place the EW estimator in a more positive light had they used those fixes. This paper evaluates the new fixes proposed by Erickson and Whited and clarifies their implications for the debate about measurement error. The analysis provides further support for ACG's main conclusion: the presence of measurement error does not justify the use of the EW estimator in lieu of more robust, simpler alternatives.

Keywords: Investment equations, measurement error, Monte Carlo simulations, instrumental variables, GMM

JEL Classification: G31, C23

Suggested Citation

Almeida, Heitor and Campello, Murillo and Galvao, Antonio F., More on the Performance of Higher Order Moment Estimators in Investment Equations (October 7, 2010). Available at SSRN: https://ssrn.com/abstract=1688804 or http://dx.doi.org/10.2139/ssrn.1688804

Heitor Almeida (Contact Author)

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
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217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Antonio F. Galvao

University of Illinois at Urbana-Champaign - Department of Economics ( email )

601 E John St
Champaign, IL 61820
United States

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