NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches

Mitchell A. Petersen

NBER Working Paper No. 11280
Issued in April 2005
NBER Program(s):   AP   CF

In both corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms and across time, and OLS standard errors can be biased. Historically, the two literatures have used different solutions to this problem. Corporate finance has relied on Rogers standard errors, while asset pricing has used the Fama-MacBeth procedure to estimate standard errors. This paper will examine the different methods used in the literature and explain when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use.

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This paper was revised on June 29, 2006

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Published: Petersen, Mitchell A. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches." Review of Financial Studies 22, 1 (January 2009): 435-80.

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