Estimating dynamic treatment effects in event studies with heterogeneous treatment effects

Abstract

estimating dynamic treatment effects in event studies with heterogeneous treatment effects liyang sun⇤ and sarah abraham† september 22, 2020 abstract to estimate the dynamic effects of an absorbing treatment, researchers often use two-way fixed effects regressions that include leads and lags of the treatment. we show that in settings with variation in treatment timing across units, the coefficient on a given lead or lag can be contaminated by effects from other periods, and apparent pretrends can arise solely from treatment effects heterogeneity. we propose an alternative estimator that is free of contamination, and illustrate the relative shortcomings of two-way fixed effects regressions with leads and lags through an empirical application. keywords: difference-in-differences, two-way fixed effects, pretrend test ⇤department of economics, mit, 77 massachusetts avenue, cambridge, ma 02139. corresponding author; lsun20@mit.edu. †cornerstone research, 699 boylston st, boston, ma 02116. the views expressed herein are solely those of the author, who is responsible for the content, and do not necessarily represent the views of cornerstone research. 1 introduction rich panel data has fueled a growing literature estimating treatment effects with two-way fixed effects regressions. this body of applied work has prompted a corresponding econometrics literature investigating the assumptions required for these regressions to yield causally interpretable estimates. for example, athey and …

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