Multi-dimensional Latent Group Structures with Heterogeneous Distributions

33 Pages Posted: 8 Jul 2020 Last revised: 20 May 2021

See all articles by Xuan Leng

Xuan Leng

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Heng Chen

Government of Canada - Research Department

Wendun Wang

Erasmus University Rotterdam (EUR) - Department of Econometrics

Date Written: June 1, 2020

Abstract

This paper aims to identify the multi-dimensional latent grouped heterogeneity of distributional effects. We consider a panel quantile regression model with additive cross-section and time fixed effects. The cross-section effects and quantile slope coefficients are both characterized by grouped patterns of heterogeneity, but each unit can belong to different groups for cross-section effects and slopes. We propose a composite-quantile approach to jointly estimate multi-dimensional group memberships, slope coefficients, and fixed effects. We show that using multiple quantiles improves clustering accuracy if memberships are quantile-invariant. We apply the methods to examine the relationship between managerial incentives and risk-taking behavior.

Keywords: Composite quantile estimation, distributional heterogeneity, latent groups, panel quantile regressions, two-way fixed effects

JEL Classification: C31, C33, C38, G31, J33

Suggested Citation

Leng, Xuan and Chen, Heng and Wang, Wendun, Multi-dimensional Latent Group Structures with Heterogeneous Distributions (June 1, 2020). Available at SSRN: https://ssrn.com/abstract=3626938 or http://dx.doi.org/10.2139/ssrn.3626938

Xuan Leng

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Heng Chen

Government of Canada - Research Department ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

Wendun Wang (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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