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Sunil Sapra
''Robust exogeneity tests in the presence of outliers''
( 2006, Vol. 3 No.29 )
Exogeneity testing is studied in the presence of outliers in response variables. Robust tests based on least absolute deviations (LAD) and M estimators are proposed and illustrated with an application to Mroz (1987) data. Our simulation results show that the proposed robust tests outperform the traditional Hausman test for exogeneity in terms of empirical power in the presence of outliers in response variables. Nevertheless, unlike the conventional Hausman test, which is undersized, the empirical size of the LAD-based exogeneity test exceeds its nominal size.
Keywords: Hausman exogeneity test Robust tests LAD estimator M estimator.
Manuscript Received : Oct 13 2006 Manuscript Accepted : Nov 13 2006

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