On the Informativeness of Specification Tests for Estimator Validity (opens in new tab)

Empirical researchers often use model specification tests, such as Hausman tests and overidentifying restrictions tests, to assess the validity of estimators rather than the correctness of models. This paper examines the extent to which such tests are informative about the presence of asymptotic bias in estimators. Under a local misspecification framework, we show that the directions of local deviation from a benchmark distribution to which ...