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Review of Financial Studies· 2013Q1

Common Errors: How to (and Not to) Control for Unobserved Heterogeneity

Todd A. Gormley, David A. Matsa

Short summary

Demeaning dependent variables or adding group means as controls are inconsistent and distort inference for unobserved heterogeneity; fixed effects estimators are consistent and recommended.

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Field: General Economics, Econometrics and Finance

General Economics, Econometrics and FinanceEconomics, Econometrics and Finance