Joint LM Test for Homoskedasticity in a One-Way Error Component Model

Baltagi, Badi H.; Bresson, Georges; Pirotte, Alain

doi:10.2139/ssrn.1815223

Joint LM Test for Homoskedasticity in a One-Way Error Component Model

Syracuse University Center for Policy Research Working Paper No. 72

25 Pages Posted: 20 Apr 2011

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University - Maxwell School of Citizenship and Public Affairs; IZA Institute of Labor Economics; Syracuse University - Center for Policy Research

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II; INRETS-DEST

Date Written: October 1, 2005

Abstract

This paper considers a general heteroskedastic error component model using panel data, and derives a joint LM test for homoskedasticity against the alternative of heteroskedasticity in both error components. It contrasts this joint LM test with marginal LM tests that ignore the heteroskedasticity in one of the error components. Monte Carlo results show that misleading inference can occur when using marginal rather than joint tests when heteroskedasticity is present in both components.

Keywords: Panel data, Heteroskedasticity, Lagrange multiplier tests, Error components, Monte Carlo simulations

JEL Classification: C23

Suggested Citation: Suggested Citation

Baltagi, Badi H. and Bresson, Georges and Pirotte, Alain, Joint LM Test for Homoskedasticity in a One-Way Error Component Model (October 1, 2005). Syracuse University Center for Policy Research Working Paper No. 72, Available at SSRN: https://ssrn.com/abstract=1815223 or http://dx.doi.org/10.2139/ssrn.1815223