DP14710 Reusing Natural Experiments

Author(s): Davidson Heath, Matthew Ringgenberg, Mehrdad Samadi, Ingrid M Werner
Publication Date: May 2020
Keyword(s): False Positive, identification, Multiple Hypothesis Testing, Natural Experiments
JEL(s): G1, G10
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14710

After a natural experiment is first used, other researchers often reuse the setting, examining different outcome variables. We examine the consequences of reusing an experimental setting using two extensively studied natural experiments, business combination laws and the Regulation SHO pilot. We apply multiple hypothesis corrections and our findings suggest many results in the existing literature are false positives. We provide guidelines for inference when an experiment is reused using simulation evidence for several popular empirical settings including difference-in-differences regressions, instrumental variables regressions, and regression discontinuity designs.