NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Antonio Galvao

Department of Economics
University of Arizona

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NBER Working Papers and Publications

April 2010Measurement Errors in Investment Equations
with Heitor Almeida, Murillo Campello: w15951
We use Monte Carlo simulations and real data to assess the performance of alternative methods that deal with measurement error in investment equations. Our experiments show that individual-fixed effects, error heteroscedasticity, and data skewness severely affect the performance and reliability of methods found in the literature. In particular, estimators that use higher-order moments are shown to return biased coefficients for (both) mismeasured and perfectly-measured regressors. These estimators are also very inefficient. Instrumental variables-type estimators are more robust and efficient, although they require fairly restrictive assumptions. We estimate empirical investment models using alternative methods. Real-world investment data contain firm-fixed effects and heteroscedasticity, c...

Published: Measurement Errors in Investment Equations (with H. Almeida and A. Galvao), Review of Financial Studies, 2010 (23), 3279-3328. [Lead article.]

 
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