NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Heteroskedasticity-Robust Inference in Finite Samples

Jerry A. Hausman, Christopher J. Palmer

NBER Working Paper No. 17698
Issued in December 2011
NBER Program(s):   TWP

Since the advent of heteroskedasticity-robust standard errors, several papers have proposed adjustments to the original White formulation. We replicate earlier findings that each of these adjusted estimators performs quite poorly in finite samples. We propose a class of alternative heteroskedasticity-robust tests of linear hypotheses based on an Edgeworth expansions of the test statistic distribution. Our preferred test outperforms existing methods in both size and power for low, moderate, and severe levels of heteroskedasticity.

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Document Object Identifier (DOI): 10.3386/w17698

Published: Economics Letters, Volume 116, Issue 2, August 2012, Pages 232­-235

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