Re: st: Spurious inference from endogeneity tests

["Justina Fischer" <JAVFischer@gmx.de>]

Hi Andreas

for judging whether instruments are weak or not I would as first step look into the first stage regression results, look at the Shea R2, the F-test on the instruments, the single estimates....that tells you already a lot. Maybe use ivreg2.

Maybe you have only one weak instrument in a set of instruments you should exclude  (so the set is then strong, even though one single weak instrument may bias your results)

Best

Justina


-------- Original-Nachricht --------
> Datum: Tue, 17 Jan 2012 22:12:36 +0100
> Von: andreas.zweifel@uzh.ch
> An: statalist@hsphsun2.harvard.edu
> Betreff: st: Spurious inference from endogeneity tests

> Dear Statausers,
> 
> I am concerned with an endogeneity problem in my sample of 126 firms when
> investigating the relationship between managerial disclosure and cost of
> capital effects. After running the ivreg28 command, the Cragg-Donald test
> F-statistic is 2.27, which indicates that my instruments are rather weak.
> However, my model appears to be correctly identified, because the Anderson test
> statistic for the first stage equation yields a p-value lower than 0.01
> and the Sargan test statistic is insignificant (p-value = 0.59). Since my
> instruments have passed the overidentification test, I run the ivendog command
> which is equivalent to a Hausman test. Again, the test statistic is
> insignificant (p-value = 0.48). 
> 
> If I compare OLS and 2SLS, I find that only the former yields a
> significant coefficient of managerial disclosure in the model regressing cost of
> capital on managerial disclosure. Considering the specification tests above, it
> seems unlikely that 2SLS is an improvement over OLS. Thus I assume that I
> can take the OLS estimates for causal inference. Is this correct? If yes,
> the point why I should not use 2SLS is likely due to the weakness of the
> instruments and the small-sample bias. So I have to conclude from my
> specification tests that my coefficient estimates from both OLS and 2SLS cannot be
> interpreted because 2SLS does not succeed in resolving the endogeneity
> problem?
> 
> Your answers will be highly appreciated.
> 
> Thanks, Andreas
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-- 
Justina AV Fischer, PhD
COFIT Fellow
World Trade Institute
University of Bern

homepage: http://www.justinaavfischer.de/
e-mail: javfischer@gmx.de. justina.fischer@wti.org
papers: http://ideas.repec.org/e/pfi55.html


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