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st: Re: testing for cross-sectional independence
On Oct 9, 2004, at 2:33, Levy wrote:
I have an unbalanced panel for several hundred firms. the maximium
is 7 whereas the short is 1 for some of the firms. the mean length is
I want to fit a fixed effect regression while one of my supervisor
prefers poolling regression. I don't know what kind of test can i use
choose models between them
can u give me some suggestions?
i have tried xttest2, but it does not work, i will try xttest0 later,
xttest2 is equivalent to the test that could be carried out after a
-sureg- estimation. You cannot run -sureg- when N>T, and that is surely
the case with your data. xttest2 tries to calculate the residual
correlation matrix from your fixed effects model, and that matrix must
be singular if there are more firms than observations per firm.
I do not see that a fixed effects regression is likely to be very
successful in this context when you have so few observations (in some
cases only one!) per firm. I would recommend using something like an
industry fixed effect if you can argue on economic terms that firms in
the same industry might share an 'industry effect', which you imagine
will be more important than the within variation in an industry.
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