A Small-Sample Correction for Testing for gth-Order Serial Correlation with Artificial Regressions
David A. Belsley
Monte Carlo experiments establish that the usual "t-statistic" used for testing for first-order serial correlation with artificial regressions is far from being distributed as a Student's t in small samples. Rather, it is badly biased in both mean and variance and results in grossly misleading tests of hypotheses when treated as a Student's t. Simply computed corrections for the mean and variance are derived, however, which are shown to lead to a transformed statistic producing acceptable tests. The test procedure is detailed and exemplar code provided.
Serial correlation, hypothesis testing, size correction
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