Testing for Unobserved Heterogeneity via k-means Clustering

A-Tier
Journal: Journal of Business & Economic Statistics
Year: 2023
Volume: 41
Issue: 3
Pages: 737-751

Authors (2)

Andrew J. Patton (Duke University) Brian M. Weller (not in RePEc)

Score contribution per author:

2.011 = (α=2.01 / 2 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Clustering methods such as k-means have found widespread use in a variety of applications. This article proposes a split-sample testing procedure to determine whether a null hypothesis of a single cluster, indicating homogeneity of the data, can be rejected in favor of multiple clusters. The test is simple to implement, valid under mild conditions (including nonnormality, and heterogeneity of the data in aspects beyond those in the clustering analysis), and applicable in a range of contexts (including clustering when the time series dimension is small, or clustering on parameters other than the mean). We verify that the test has good size control in finite samples, and we illustrate the test in applications to clustering vehicle manufacturers and U.S. mutual funds.

Technical Details

RePEc Handle
repec:taf:jnlbes:v:41:y:2023:i:3:p:737-751
Journal Field
Econometrics
Author Count
2
Added to Database
2026-01-28