Simple formulas for standard errors that cluster by both firm and time

When estimating finance panel regressions, it is common practice to adjust standard errors for correlation either across firms or across time. These procedures are valid only if the residuals are correlated either across time or across firms, but not across both. This paper shows that it is very easy to calculate standard errors that are robust to simultaneous correlation along two dimensions, such as firms and time. The covariance estimator is equal to the estimator that clusters by firm, plus the estimator that clusters by time, minus the usual heteroskedasticity-robust ordinary least squares (OLS) covariance matrix. Any statistical package with a clustering command can be used to easily calculate these standard errors.     

Changes in Indirect Taxes in Australia: A Dynamic General Equilibrium Analysis

Over the last thirty years, the effects of indirect taxation changes have been analysed using comparative static general equilibrium models. We use a new method to analyse current changes in Australia's indirect taxes: dynamic computable general equilibrium modelling. Comparative static methods compare the situation in a given year (usually unspecified) with and without a policy change. The dynamic method shows the effects of a policy change through time. Comparative static methods are usually restricted to estimates of long-run changes in allocative efficiency. The dynamic method provides information not only on efficiency but also on adjustment processes, including variations in employment. With our dynamic method, the effects of policy changes are analysed as deviations from explicit forecasts. We find that these forecasts are important for the policy results. For Australia's current set of indirect tax changes, our main conclusions are (i) the short-run employment effects depend critically on the wage response; (ii) merchandise exporters benefit but tourism is harmed; and (iii) the long-run welfare effectsare likely to be negative, reflecting a decline in the terms of trade and increased compliance costs.     

Business Ethics on the Internet: 2

In a previous article the authors provided an introduction to using the internet as a resource for business ethics. In this sequel they look at newsgroups and chatrooms, and conclude by looking at the websites of Shell and a Shell critic on the controversial ethical aspects of its corporate policy and behaviour. Ben Fairweather is a Research Fellow, and Steve Dixon is Webmaster, at the Centre for Computing and Social Responsibility, De Montfort University, The Gateway, Leicester LEl 9BH, England (email: ccsr@dmu.ac.uk) (website http://www.ccsr.cms.dmu.ac.uk/).     

THE EFFECT OF MARKET PROXY REBALANCING POLICIES ON DETECTING ABNORMAL PERFORMANCE

In this paper, effects on the measured abnormal performance of test portfolios are compared against market proxies having the same or different rebalancing policies. Results show that the common practice of comparing buy-and-hold test portfolios with equally weighted market proxies produces lower Jensen [ 7 ] alphas and lower alpha t-values. Comparing buy-and-hold test portfolios with value-weighted market proxies produces higher portfolio betas and alphas, but lower alpha t-values. Finally, comparing buy-and-hold test portfolios with buy-and-hold market proxies produces the most powerful tests of abnormal performance.