Re: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests

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

HI Andreas,

there are no 'right' instrumentsas such: there are only good ones (valid, strong) and bad ones. Imagine ´good´ and ´bad´ being on a continuous scale: most instruments are somwhere on this scale, but rarely at the extreme.

now to the Sargan:
"The Sargan test statistic [...] [is] under the null that the error term is uncorrelated with the instruments."
source: http://en.wikipedia.org/wiki/Instrumental_variable

so you want a p-value > 0.10

no rejection is what you want: the null means you have good instruments.

I recommend to use ivreg2 whih allows you to test the redundany of instruments.

Best
Justina


-------- Original-Nachricht --------
> Datum: Fri, 20 Jan 2012 21:22:54 +0100
> Von: andreas.zweifel@uzh.ch
> An: statalist@hsphsun2.harvard.edu
> Betreff: Antwort: Re: Antwort: Re: RE: st: Spurious inference from endogeneity tests

> Hi
> 
> I think you are quite right, and my intuition also tells me something
> else. Let's assume I have only one endogenous regressor,
> but more than one instrument candidates since there is no theoretical
> foundation for choosing the 'right' instruments for the
> endogenous variable. If I include all of these instruments and the
> -overid- test statistic is still not significant, there is
> likely something wrong with the instruments. This is because theory claims
> that one instrument should suffice here, and each
> additional instrument included merely increases the standard deviation of
> the IV estimator. As a consequence, the model must
> be overidentified from a theoretical view. However, if the Sargan test
> fails to detect overidentification, this can only be 
> due to the fact that the selected instruments are quite weak...
> 
> Best,
> Andreas
> 
> -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- 
> An: statalist@hsphsun2.harvard.edu
> Von: "Justina Fischer" 
> Gesendet von: owner-statalist@hsphsun2.harvard.edu
> Datum: 19.01.2012 23:22
> Betreff: Re: Antwort: Re: RE: st: Spurious inference from endogeneity
> tests
> 
> nope.. the bias could turn the direction of observed influence - how do
> you know then which one is correct (OLS or IV)?
> 
> Rule of thumb is: better no instrument (OLS) than weak ones !!
> 
> it is sufficient to provide good convincing arguments why you selected the
> instruments; there is no need for theoretical models suggesting the
> instrument explicitly. Let your phantasy work !
> 
> Cheers
> Justina
> 
> -------- Original-Nachricht --------
> > Datum: Thu, 19 Jan 2012 23:00:00 +0100
> > Von: andreas.zweifel@uzh.ch
> > An: statalist@hsphsun2.harvard.edu
> > Betreff: Antwort: Re: RE: st: Spurious inference from endogeneity tests
> 
> > Thanks for this clarifying remark.
> > 
> > In addition, literature always stresses the requirement that
> > IVs should be selected in line with theoretically motivated 
> > arguments. But economic theory may sometimes be limited in its 
> > capability to yield valid instruments. However, when instruments
> > are therefore weak, I expect the bias of the IV estimator to be
> > similarly large as the OLS estimator. Maybe then it would make
> > sense to prefer one of the two estimators in terms of theory
> > driven expectations as the lesser evil?
> > 
> > -----owner-statalist@hsphsun2.harvard.edu schrieb: ----- 
> > An: statalist@hsphsun2.harvard.edu
> > Von: Austin Nichols 
> > Gesendet von: owner-statalist@hsphsun2.harvard.edu
> > Datum: 18.01.2012 16:37
> > Betreff: Re: RE: st: Spurious inference from endogeneity tests
> > 
> > In re
> > the poster's central question:
> > "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?"
> > I would answer yes.  Without better instruments, you have learned
> > nothing from 2SLS, including whether OLS is biased or not.  The overID
> > test is no good if you don't have strong instruments, since its
> > failure to reject the overID restrictions could be due merely to the
> > weakness of your excluded instruments.
> > 
> > On Tue, Jan 17, 2012 at 6:44 PM, Justina Fischer <JAVFischer@gmx.de>
> > wrote:
> > > wow. I am deeply impressed :-)
> > >
> > > Let us hope the authors provide user-written Stata commands soon....
> > >
> > > justina
> > > -------- Original-Nachricht --------
> > >> Datum: Tue, 17 Jan 2012 18:41:27 -0500
> > >> Von: Cameron McIntosh <cnm100@hotmail.com>
> > >> An: STATA LIST <statalist@hsphsun2.harvard.edu>
> > >> Betreff: RE: st: Spurious inference from endogeneity tests
> > >
> > >> The following papers will also be helpful:
> > >> Murray, M.P. (2006). Avoiding Invalid Instruments and Coping with
> Weak
> > >> Instruments. Journal of Economic Perspectives, 20(4),
> > >>
> >
> 111-132.http://www.eui.eu/Personal/Guiso/Courses/Econometrics/Murray_IV_jep_06.pdf
> > >>
> > >> Chao, J.C., & Swanson, N.R. (2005). Consistent estimation with a
> large
> > >> number of weak instruments. Econometrica, 73(5),
> > >>
> >
> 1673–1692.http://gemini.econ.umd.edu/jrust/econ623/files/chao_swanson_econometrica.pdf
> > >>
> > >> Nevo, A., & Rosen, A.M. (2010). Identification with Imperfect
> > Instruments.
> > >> The Review of Economics and Statistics, Accepted for publication.
> > >>
> > >> Kolesár, M., Chetty, R., Friedman, J.N., Glaeser, E.L., & Imbens,
> G.W.
> > >>  (October 2011). Identification and Inference with Many Invalid
> > Instruments.
> > >> NBER Working Paper No. 17519. http://www.nber.org/papers/w17519
> > >>
> > >> Cam
> > >> > Date: Wed, 18 Jan 2012 00:06:34 +0100
> > >> > From: JAVFischer@gmx.de
> > >> > Subject: Re: st: Spurious inference from endogeneity tests
> > >> > To: statalist@hsphsun2.harvard.edu
> > >> >
> > >> > 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?
> > 
> > *
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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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-- 
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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