A portmanteau test for serial correlation in a linear panel model

We introduce the command xtserialpm to perform the portmanteau test developed in Jochmans (2019, Cambridge Working Papers in Economics No. 1993, University of Cambridge, Faculty of Economics). The procedure tests for serial correlation of arbitrary form in the errors of a linear panel model after estimation of the regression coefficients by the within-group estimator. The test is designed for short panels and can deal with general missing-data patterns. The test is different from the related portmanteau test of Inoue and Solon (2006, Econometric Theory 22: 835-851), which is performed by xtistest (Wursten, 2018, Stata Journal 18: 76-100), in that it allows for heteroskedasticity. In simulations documented below, xtserialpm is found to provide a more powerful test than xthrtest (Wursten 2018), which performs the test for first-order autocorrelation of Born and Breitung (2016, Econometric Reviews 35: 1290-1316). We also provide comparisons with xtistest and xtserial (Drukker, 2003, Stata Journal 3: 168-177). These tests perform well under stationarity but break down under even mild forms of heteroskedasticity.