A test for Kronecker product structure covariance matrix
We propose a test for a covariance matrix to have Kronecker Product Structure (KPS). KPS implies a reduced rank restriction on a certain transformation of the covariance matrix and the new procedure is an adaptation of the Kleibergen and Paap (2006) reduced rank test. To derive the limiting distribu...
| Main Authors: | , , |
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| Format: | Working paper |
| Language: | English |
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University of Oxford
2021
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| _version_ | 1826290959904669696 |
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| author | Guggenberger, P Kleibergen, F Mavroeidis, S |
| author_facet | Guggenberger, P Kleibergen, F Mavroeidis, S |
| author_sort | Guggenberger, P |
| collection | OXFORD |
| description | We propose a test for a covariance matrix to have Kronecker Product Structure (KPS). KPS implies a reduced rank restriction on a certain transformation of the covariance matrix and the new procedure is an adaptation of the Kleibergen and Paap (2006) reduced rank test. To derive the limiting distribution of the Wald type test statistic proves challenging partly because of the singularity of the covariance matrix estimator that appears in the weighting matrix. We show that the test statistic has a χ2 limiting null distribution with degrees of freedom equal to the number of restrictions tested. Local asymptotic power results are derived. Monte Carlo simulations reveal good size and power properties of the test. Re-examining fifteen highly cited papers conducting instrumental variable regressions, we find that KPS is not rejected in 56 out of 118 specifications at the 5% nominal size. |
| first_indexed | 2024-03-07T02:52:10Z |
| format | Working paper |
| id | oxford-uuid:ae09e26d-24fc-4601-8a83-e284defb410c |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T02:52:10Z |
| publishDate | 2021 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:ae09e26d-24fc-4601-8a83-e284defb410c2022-03-27T03:39:59ZA test for Kronecker product structure covariance matrixWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:ae09e26d-24fc-4601-8a83-e284defb410cEnglishSymplectic ElementsUniversity of Oxford2021Guggenberger, PKleibergen, FMavroeidis, SWe propose a test for a covariance matrix to have Kronecker Product Structure (KPS). KPS implies a reduced rank restriction on a certain transformation of the covariance matrix and the new procedure is an adaptation of the Kleibergen and Paap (2006) reduced rank test. To derive the limiting distribution of the Wald type test statistic proves challenging partly because of the singularity of the covariance matrix estimator that appears in the weighting matrix. We show that the test statistic has a χ2 limiting null distribution with degrees of freedom equal to the number of restrictions tested. Local asymptotic power results are derived. Monte Carlo simulations reveal good size and power properties of the test. Re-examining fifteen highly cited papers conducting instrumental variable regressions, we find that KPS is not rejected in 56 out of 118 specifications at the 5% nominal size. |
| spellingShingle | Guggenberger, P Kleibergen, F Mavroeidis, S A test for Kronecker product structure covariance matrix |
| title | A test for Kronecker product structure covariance matrix |
| title_full | A test for Kronecker product structure covariance matrix |
| title_fullStr | A test for Kronecker product structure covariance matrix |
| title_full_unstemmed | A test for Kronecker product structure covariance matrix |
| title_short | A test for Kronecker product structure covariance matrix |
| title_sort | test for kronecker product structure covariance matrix |
| work_keys_str_mv | AT guggenbergerp atestforkroneckerproductstructurecovariancematrix AT kleibergenf atestforkroneckerproductstructurecovariancematrix AT mavroeidiss atestforkroneckerproductstructurecovariancematrix AT guggenbergerp testforkroneckerproductstructurecovariancematrix AT kleibergenf testforkroneckerproductstructurecovariancematrix AT mavroeidiss testforkroneckerproductstructurecovariancematrix |