Please use this identifier to cite or link to this item: http://hdl.handle.net/2381/40518
Title: Asymptotic power of the sphericity test under weak and strong factors in a fixed effects panel data model
Authors: Baltagi, Badi H.
Kao, Chihwa
Wang, Fa
First Published: 24-Mar-2017
Publisher: Taylor & Francis
Citation: Taylor & Francis, 2017, 36 (6-9), pp. 853-882 (30)
Abstract: This paper studies the asymptotic power for the sphericity test in a fixed effect panel data model proposed by Baltagi et al. (2011 Baltagi, B. H., Feng, Q., Kao, C. (2011). Testing for sphericity in a fixed effects panel data model. Econometrics Journal 14:25–47.), (JBFK). This is done under the alternative hypotheses of weak and strong factors. By weak factors, we mean that the Euclidean norm of the vector of the factor loadings is O(1). By strong factors, we mean that the Euclidean norm of the vector of factor loadings is , where n is the number of individuals in the panel. To derive the limiting distribution of JBFK under the alternative, we first derive the limiting distribution of its raw data counterpart. Our results show that, when the factor is strong, the test statistic diverges in probability to infinity as fast as Op(nT). However, when the factor is weak, its limiting distribution is a rightward mean shift of the limit distribution under the null. Second, we derive the asymptotic behavior of the difference between JBFK and its raw data counterpart. Our results show that when the factor is strong, this difference is as large as Op(n). In contrast, when the factor is weak, this difference converges in probability to a constant. Taken together, these results imply that when the factor is strong, JBFK is consistent, but when the factor is weak, JBFK is inconsistent even though its asymptotic power is nontrivial.
DOI Link: 10.1080/07474938.2017.1307580
ISSN: 0747-4938
eISSN: 1532-4168
Links: http://www.tandfonline.com/doi/full/10.1080/07474938.2017.1307580
http://hdl.handle.net/2381/40518
Embargo on file until: 24-Mar-2018
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright © 2017, Taylor & Francis. Deposited with reference to the publisher’s open access archiving policy.
Description: The file associated with this record is under embargo until 12 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.
Appears in Collections:Published Articles, Dept. of Economics

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