Heteroskedasticity-robust inference in finite samples

Abstract

Since the advent of heteroskedasticity-robust standard errors, several papers have proposed adjustments to the original White formulation. We replicate earlier findings that each of these adjusted estimators performs quite poorly in finite samples. We propose a class of alternative heteroskedasticity-robust tests of linear hypotheses based on an Edgeworth expansion of the test statistic distribution. Our preferred test outperforms existing methods in both size and power for low, moderate, and severe levels of heteroskedasticity.