number of lags in OLS using Neweywest correction

[buianhtuan2000]

Hi Tom

I am running simple OLS estimator with robusterrors option.

LINREG(ROBUSTERRORS,LAGS=???,LWINDOW=NEWEYWEST) Y
# Constant X

Could you please let me know how to choose lag length?

Thank you very much

[TomDoan]

There's an entire literature on that. See, for instance, Andrews(1991), "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation", Econometrica, vol 59, pp 817-858. As you can tell just from the length of the paper, you are not asking an easy question.

However, in many cases, the number of lags is known from the structure of the data. With overlapping predictions (spot vs futures, for instance), the serial correlation is a moving average with no more than the number of periods of overlap.