Testing for cross-sectional dependence in a panel factor model using the wild bootstrap $$F$$ test

This paper considers testing for cross-sectional dependence in a panel factor model. Based on the model considered by Bai (Econometrica 71: 135–171, 2003), we investigate the use of a simple $$F$$ test for testing for cross-sectional dependence when the factor may be known or unknown. The limiting distributions of these $$F$$ test statistics are derived when the cross-sectional dimension and the time-series dimension are both large. The main contribution of this paper is to propose a wild bootstrap $$F$$ test which is shown to be consistent and which performs well in Monte Carlo simulations especially when the factor is unknown.

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