Covariance adjustment in randomized experiments and observational studies

Abstract. By slightly reframing the concept of covariance adjustment in randomized experiments, a method of exact permutation inference is derived that is entirely free of distributional assumptions and uses the random assignment of treatments as the “reasoned basis for inference.” This method of exact permutation inference may be used with many forms of covariance adjustment, including robust regression and locally weighted smoothers. The method is then generalized to observational studies where treatments were not randomly assigned, so that sensitivity to hidden biases must be examined. Adjustments using an instrumental variable are also discussed. The methods are illustrated using data from two observational studies