The heteroskedasticity-consistent covariance estimator in accounting

The heteroskedasticity-consistent covariance estimator in accounting The main purpose of this paper is to compare the White (1980) heteroskedasticity-consistent (HC) covariance matrix estimator with alternative estimators. Many regression packages compute the White (1980) heteroskedasticity-consistent (HC) covariance matrix estimator. The common procedure in Accounting and Finance research to deal with the heteroskedasticity problem is based on this estimator, despite its worse finite-samples properties when compared with other consistent estimators. In this paper we compare several HC covariance matrix estimators based on a sample of 3706 European listed companies from Austria, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden and the United Kingdom. We conclude that HC standard errors increase when finite-samples more appropriate estimators are considered and in the most part of countries the Ohlson (1995) model coefficients estimates became statistically insignificant. This can be explained by the high leverage points in the design matrix. To the best of our knowledge it is the first time that these alternative estimators are compared with the one of White (1980) in accounting research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The heteroskedasticity-consistent covariance estimator in accounting

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0212-1
Publisher site
See Article on Publisher Site

References

  • Effects of cross-sectional scale differences on regression results in empirical accounting research
    Barth, ME; Kallapur, S
  • A variance ratio test of the behaviour of some FTSE equity indices using ranks and signs
    Belaire-Franch, J; Opong, KK

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