Reusing Natural Experiments

Authors

Davidson Heath, Finance and Business Economics DepartmentFollow
Matthew Ringgenberg, Department of FinanceFollow
Mehrdad Samadi, Finance DepartmentFollow
Ingrid M. Werner, Department of FinanceFollow

Publication Date

9-21-2019

Abstract

Natural experiments are used in empirical research to make causal inferences. After a natural experiment is first used, other researchers often reuse the setting, examining different outcomes based on causal chain arguments. Using simulation evidence combined with two extensively studied natural experiments, business combination laws and the Regulation SHO pilot, we show that the repeated use of a natural experiment significantly increases the likelihood of false discoveries. To correct this, we propose multiple testing methods which account for dependence across tests and we show evidence of their efficacy.

Document Type

Article

Keywords

False Positive, Identification, Multiple Hypothesis Testing, Natural Experiments

Disciplines

Finance

Source

SMU Cox: Finance (Topic)

Language

English