“Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends” (2022), by Jonathan Roth. Mathematics research paper. Original abstract below, unchanged. No free PDF was found.

Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends

Jonathan Roth · August 31, 2022 · Mathematics

Abstract

This paper discusses two important limitations of the common practice of testing for preexisting differences in trends (“ pre-trends”) when using difference-in-differences and related methods. First, conventional pre-trends tests may have low power. Second, conditioning the analysis on the result of a pretest can distort estimation and inference, potentially exacerbating the bias of point estimates and under-coverage of confidence intervals. I analyze these issues both in theory and in simulations calibrated to a survey of recent papers in leading economics journals, which suggest that these limitations are important in practice. I conclude with practical recommendations for mitigating these issues. (JEL A14, C23, C51)

Source page DOI: 10.1257/aeri.20210236