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Re: st: Panel FE vs. pooled OLS with demeaned variables


From   "Mark Schaffer" <M.E.Schaffer@hw.ac.uk>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Panel FE vs. pooled OLS with demeaned variables
Date   Tue, 20 Sep 2005 16:18:22 +0100

Alice,

The coefficients are the same but the SEs are different because of a 
standard trap in fixed effects estimation - the SEs have to be 
adjusted for the degrees of freedom used up by the fixed effects.  
Have a look at any standard econometrics book, where it should be 
covered, or indeed in the Stata manual entry for -xtreg,fe-.

--Mark

From:           	"Alice(Libo) Sun" <libosun@mail.utexas.edu>
To:             	<statalist@hsphsun2.harvard.edu>
Subject:        	st: Panel FE vs. pooled OLS with demeaned variables
Date sent:      	Tue, 20 Sep 2005 10:03:26 -0500
Send reply to:  	statalist@hsphsun2.harvard.edu

> Dear Statalist,
> 
> 
> I need to run a two-step regression similar to the fixed effect model.
> (Xtreg, fe).
> 
> I first replicate the fixed effect results by running pooled OLS with
> demeaned variables (demean by groups). Yet, I got same coefficients, but
> relative larger t statistics.
> 
> I attached the results for the two approaches as follows. Any suggestion
> will be appreciated.
> 
> Thanks,
> 
> 
> Alice
> 
> 
> ---------------------------------------------------------------------
> . regress  dqratios  ddiv_bkrgs  ddiv_bkpts dsizes dwlvgs debitdags dtos
> 
>       Source |       SS       df       MS              Number of obs =
> 839
> -------------+------------------------------           F(  6,   832) =
> 5.71
>        Model |  9.47964286     6  1.57994048           Prob > F      =
> 0.0000
>     Residual |  230.110177   832  .276574732           R-squared     =
> 0.0396
> -------------+------------------------------           Adj R-squared =
> 0.0326
>        Total |   239.58982   838  .285906706           Root MSE      =
> .5259
> 
> ----------------------------------------------------------------------------
> --
>     dqratios |      Coef.   Std. Err.      t    P>|t|     [95% Conf.
> Interval]
> -------------+--------------------------------------------------------------
> --
>   ddiv_bkrgs |  -.0790218   .0611639    -1.29   0.197    -.1990756
> .0410319
>   ddiv_bkpts |   .1574348   .0536925     2.93   0.003     .0520462
> .2628235
>       dsizes |   .2569522   .0672621     3.82   0.000     .1249289
> .3889755
>       dwlvgs |  -.0851709   .0287239    -2.97
> 0.003    -.1415507   -.0287911
>    debitdags |   .0556536   .0272819     2.04   0.042     .0021041
> .1092031
>         dtos |  -.0469219   .0285672    -1.64   0.101    -.1029942
> .0091505
>        _cons |  -1.21e-09   .0181562    -0.00   1.000    -.0356374
> .0356374
> ----------------------------------------------------------------------------
> --
> 
> . xtreg  qratios  div_bkrgs  div_bkpts sizes wlvgs ebitdags tos, fe
> 
> Fixed-effects (within) regression               Number of obs      =
> 839
> Group variable (i) : permno                     Number of groups   =
> 142
> 
> R-sq:  within  = 0.0396                         Obs per group: min =
> 1
>        between = 0.0375                                        avg =
> 5.9
>        overall = 0.0466                                        max =
> 9
> 
>                                                 F(6,691)           =
> 4.74
> corr(u_i, Xb)  = -0.1086                        Prob > F           =
> 0.0001
> 
> ----------------------------------------------------------------------------
> --
>      qratios |      Coef.   Std. Err.      t    P>|t|     [95% Conf.
> Interval]
> -------------+--------------------------------------------------------------
> --
>    div_bkrgs |  -.0790218   .0671148    -1.18   0.239    -.2107952
> .0527515
>    div_bkpts |   .1574349   .0589164     2.67   0.008     .0417582
> .2731115
>        sizes |   .2569522   .0738062     3.48   0.001     .1120409
> .4018635
>        wlvgs |  -.0851709   .0315185    -2.70
> 0.007    -.1470545   -.0232873
>     ebitdags |   .0556536   .0299363     1.86   0.063    -.0031234
> .1144305
>          tos |  -.0469219   .0313466    -1.50   0.135    -.1084679
> .0146242
>        _cons |  -5.08e-10   .0199227    -0.00   1.000    -.0391163
> .0391163
> -------------+--------------------------------------------------------------
> --
>      sigma_u |   .9147399
>      sigma_e |  .57707052
>          rho |  .71531722   (fraction of variance due to u_i)
> ----------------------------------------------------------------------------
> --
> F test that all u_i=0:     F(141, 691) =    10.99            Prob > F =
> 0.0000
> 
> 
> 
> ----------------------------------------------------------------------------
> ------
> 
> 
> 
> 
> 
> 
> 
> 
> 
> 
> *
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3296 fax
44-131-451-3485 CERT administrator
http://www.sml.hw.ac.uk/cert

*
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