Cenci, Simone;
(2024)
Overlooked biases from misidentifications of causal structures.
Journal of Finance and Data Science
, 10
, Article 100127. 10.1016/j.jfds.2024.100127.
(In press).
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Abstract
Testing theories and explaining phenomena in empirical finance often requires estimating causal effects from observational data. In this note, we argue that some of the standard practices to address endogeneity concerns in regression-based estimation approaches can, when not correctly implemented and their results not appropriately interpreted, generate additional, often overlooked, problems. We identify three main systemic issues in empirical finance, provide theoretical and numerical examples to illustrate and support our arguments, and propose solutions to overcome these limitations. Overall, we suggest that these issues are caused by a systematic underestimation of the importance of robust ex-ante identification, and interpretation, of causal structures in empirical studies in finance.
| Type: | Article |
|---|---|
| Title: | Overlooked biases from misidentifications of causal structures |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.jfds.2024.100127 |
| Publisher version: | https://doi.org/10.1016/j.jfds.2024.100127 |
| Language: | English |
| Additional information: | © The Author(s), 2024. This is an open access article distributed under the terms of the Creative Commons Attribution-Non Commercial-No Derivatives License 4.0 (CC-BY-NC-ND), where it is permissible to download and share the work provided it is properly cited. The work cannot be changed in any way or used commercially without permission from the journal. http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| Keywords: | Empirical finance, Causal inference, Identification |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10196463 |
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