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FDML versus GMM for Dynamic Panel Models with Roots Near Unity

Mehic, Adrian LU (2021) In Journal of Risk and Financial Management 14(9).
Abstract

This paper evaluates the first-differenced maximum likelihood (FDML) and the continuously updating system generalized method of moments (CU-GMM) estimators of dynamic panel models when the data is close to non-stationary. This case is far from trivial, as a high degree of persistence is the norm rather than the exception in economic panels, particularly in financial management. While the CU-GMM is shown to have lower bias and higher power, it suffers from severe size distortions, which are exacerbated when the data approaches non-stationarity.

Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
dynamic panel data, FDML estimation, persistence
in
Journal of Risk and Financial Management
volume
14
issue
9
article number
405
publisher
MDPI AG
external identifiers
  • scopus:85165731365
ISSN
1911-8066
DOI
10.3390/jrfm14090405
language
English
LU publication?
yes
id
21cfae27-aac3-4024-b33a-3eda86a2b222
date added to LUP
2023-11-22 15:08:23
date last changed
2023-11-22 15:09:09
@article{21cfae27-aac3-4024-b33a-3eda86a2b222,
  abstract     = {{<p>This paper evaluates the first-differenced maximum likelihood (FDML) and the continuously updating system generalized method of moments (CU-GMM) estimators of dynamic panel models when the data is close to non-stationary. This case is far from trivial, as a high degree of persistence is the norm rather than the exception in economic panels, particularly in financial management. While the CU-GMM is shown to have lower bias and higher power, it suffers from severe size distortions, which are exacerbated when the data approaches non-stationarity.</p>}},
  author       = {{Mehic, Adrian}},
  issn         = {{1911-8066}},
  keywords     = {{dynamic panel data; FDML estimation; persistence}},
  language     = {{eng}},
  number       = {{9}},
  publisher    = {{MDPI AG}},
  series       = {{Journal of Risk and Financial Management}},
  title        = {{FDML versus GMM for Dynamic Panel Models with Roots Near Unity}},
  url          = {{http://dx.doi.org/10.3390/jrfm14090405}},
  doi          = {{10.3390/jrfm14090405}},
  volume       = {{14}},
  year         = {{2021}},
}