Contents
What is J test statistics?
The test statistic is the sum of weighted square deviations of the sample moments evaluated at the GMM estimates, and under the null hypothesis of the restrictions its asymptotic distribution is chi-squared with the number of degrees of freedom equal to the number of restrictions tested.
What does J test tell you?
The J-stat is a test of over-identifying restrictions – your model places enough restrictions that you can check to make sure that they are all consistent.
What makes an instrument weak?
In instrumental variables (IV) regression, the instruments are called weak if their correlation with the endogenous regressors, conditional on any controls, ∗Andrews and Stock, Department of Economics, Harvard University, Cambridge, MA, 02138.
What was the purpose of the Sargan-Hansen test?
The Sargan–Hansen test or Sargan’s test is a statistical test used for testing over-identifying restrictions in a statistical model. It was proposed by John Denis Sargan in 1958, and several variants were derived by him in 1975. Lars Peter Hansen re-worked through the derivations and showed…
When to use Hansen’s J or Sargan’s statistic?
As described in Roodman (2006:11-12) the choice of relying on the Hansen’s J or Sargan’s test of overidentifying restrictions depends on whether you suspect non-sphericity in the errors (e.g. in the case of heteroscedastic errors). Sargan’s statistic is a special case of Hansen’s J under the assumption of homoscedasticity.
Is the Sargan test statistic inconsistent for robust GMM?
Therefore, for robust GMM the Sargan test statistic is inconsistent. Nonetheless, both these tests have low power if your model includes a very large set of excluded instruments, so you might want to also investigate the “difference-in-Sargan tests of exogeneity of instrument subsets”. Best, Johan Hellstrom ————— Roodman, D. (2006).
Is the Sargan test based on priori restrictions?
The Sargan test is based on the assumption that model parameters are identified via a priori restrictions on the coefficients, and tests the validity of over-identifying restrictions.