Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches, Review of Financial Studies
In 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 or across time, and OLS standard errors can be biased. Historically, researchers in the two literatures have used different solutions to this problem. This paper examines the different methods used in the literature and explains 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. Michael Brennan Award for Best Paper Runner-up Programming advice and supplementary tables.
Petersen, Mitchell A.. 2009. Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches. Review of Financial Studies. 22: 435-480.LINK