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Event

27 February 2020

The School of Economics and Finance is hosting internal seminars, the Brown Bag Seminar Series, where faculty, PhD students and external guests are invited to present their ongoing work to the School. The seminars run for 1 hour and a light lunch is served. Staff and students are encouraged to have discussions following the presentations.

Speaker:

Professor Daniel Smith - QUT School of Economics and Finance

Title:

Why you should never use Newey-West to compute standard errors when using overlapping observations, and what you should do instead.

Abstract:

The standard approach currently used in the literature to account for serial dependence that arises from the use of overlapping returns in empirical asset pricing applications is to uses Newey-West with number of lags equal to the number of overlapping terms. This is a bad idea. The paper analytically computes the bias and variance of Newey-West estimators and show that this current approach induces a substantial bias. In some cases this bias is offset by the variance of the estimator and it turns out that using N lags is the best that Newey-West can do. This happens because the variance of Newey-West is substantial. And fortunately we can exploit the known structure that induces the autocorrelation to compute standard errors that are consistent to heteroscedasticity and this specific type of autocorrelation. Of course if we are dealing with unspecified serial dependence then Newey-West is about the best we can do. Unfortunately that is not very good at all.

 

Date
27 February 2020 - 27 February 2020
Time
12:00pm - 1:00pm
Location
Gardens Point Campus, Z Block, Level 8
Room
GP - Z808
Cost
Free to attend
Organisation
QUT School of Economics and Finance
Info
Nadeeka De Silva
Email
hasthimuninadeeka.desilva@hdr.qut.edu.au
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