I am analysing ESG and conventional mutual funds. I decided to measure the extra performance of each category using the Fama French 4 factor model, but it seems to me that in previous literature they do not investigate issues such as autocorrelation and heteroskedasticity. SOme paper just write down that they use Robust Standard Errors. Could you please explain me why and in case provide me some books, papers or links where I can investigate this topic? Thank you
If you face heteroskedasticity, you have to check if heteroskedasticity is conditional (e.g., with a Breush-Pagan Chi-square test). If so, you have to use White-corrected standard errors.
If you have serial correlation (e.g., you can test that with a Durbin-Watson test), you can use the Hansen method to adjust the standard errors.
Basically, what you do with both methods is to use "robust" standard errors. Otherwise, your standard errors are underestimated.
I recommend Wooldridge, J. M. (2015). Introductory econometrics: A modern approach. Cengage learning.