Alternative methods to deal with measurement error

Hong Yi Chen, Alice C. Lee, Cheng Few Lee

Research output: Chapter in Book/Report/Conference proceedingChapter

2 Scopus citations


Specification error and measurement error are two major issues in finance research. The main purpose of this chapter is (i) to review and extend existing errors-in-variables (EIV) estimation methods, including classical method, grouping method, instrumental variable method, mathematical programming method, maximum likelihood method, LISREL method, and the Bayesian approach; (ii) to investigate how EIV estimation methods have been used to finance related studies, such as cost of capital, capital structure, investment equation, and test capital asset pricing models; and (iii) to give a more detailed explanation of the methods used by Almeida et al. (2010).

Original languageEnglish (US)
Title of host publicationHandbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning (In 4 Volumes)
PublisherWorld Scientific Publishing Co.
Number of pages46
ISBN (Electronic)9789811202391
ISBN (Print)9789811202384
StatePublished - Jan 1 2020

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)


  • Bayesian approach
  • Capital asset pricing model
  • Capital structure
  • Classical method
  • Cost of capital
  • Errors-in-variables
  • Grouping method
  • Instrumental variable method
  • Investment equation
  • LISREL method
  • Mathematical programming method
  • Maximum likelihood method
  • Measurement error


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