Robust exogeneity tests in the presence of outliers
نویسنده
چکیده
Exogeneity testing is studied in the presence of outliers in response variables. Robust tests based on least absolute deviations (LAD) and M estimators are proposed and illustrated with an application to Mroz (1987) data. Our simulation results show that the proposed robust tests outperform the traditional Hausman test for exogeneity in terms of empirical power in the presence of outliers in response variables. Nevertheless, unlike the conventional Hausman test, which is undersized, the empirical size of the LAD-based exogeneity test exceeds its nominal size. I am grateful to the associate editor, Professor Timothy Conley and an anonymous referee for several helpful comments. Citation: Sapra, Sunil, (2006) "Robust exogeneity tests in the presence of outliers." Economics Bulletin, Vol. 3, No. 29 pp. 1-6 Submitted: July 18, 2006. Accepted: November 13, 2006. URL: http://economicsbulletin.vanderbilt.edu/2006/volume3/EB-06C30036A.pdf
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