Sample interview questions: How do you address endogeneity or selection bias issues in your regression models?
Sample answer:
Addressing Endogeneity
- Instrumental Variables (IV): Utilize an instrumental variable that influences the endogenous variable but is independent of the error term.
- Generalized Method of Moments (GMM): Estimate parameters by minimizing the distance between the model’s moment conditions and the sample moment conditions, reducing biases caused by endogeneity.
- Lagged Dependent Variable: Use lagged values of the endogenous variable as an exogenous variable in the regression model.
- Fixed Effects: Control for time-invariant unobserved factors that may confound the relationship between the endogenous and independent variables.
Source: https://hireabo.com/job/7_4_20/Quantitative%20Analyst%20%28Quant%29