I have an instrument, that I want to use with IV 2SLS, to predict my endogenous variable.
The scatter plot of my instrument against my endogenous variable looks like this.
Using Stata's binscatter, I can absorb control variables and fixed effects, and the resulting binscatter plot looks like this. In the X axis, all data points are distributed across 100 equal bins, and the chart reports the mean value for each bin, for values in the X and Y axes (after controlling for control variables and fixed effects).
The First Stage of IV 2SLS is statistically significant (0.357***, using robust standard errors), and the F Stat is above the 10 critical threshold.
My question is: is instrument too noisy? I see many outliers, and I am not sure about whether the fact that I get a positive and significant First Stage, and F Stats above 10, is a statistical artefact.