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st: Estimating fixed effects - why is a firm dropped?


From   "Amy Dunbar" <Amy.Dunbar@business.uconn.edu>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: Estimating fixed effects - why is a firm dropped?
Date   Mon, 3 Apr 2006 12:22:26 -0400

I'm back with another panel data question. I am estimating the following
panel model.

btmit = a + ai + at + r0retit + r1retit + r2retit + r3retit + r4retit +
r5retit + r6retit  + eit

. tsset permno yeara
       panel variable:  permno, 10051 to 92655
       time variable:  yeara, 1993 to 1998

. xi: reg btm i.permno r0ret r1ret r2ret r3ret r4ret r5ret r6ret
i.yeara 
i.permno        _Ipermno_10051-92655(naturally coded; _Ipermno_10051
omitted)
i.yeara         _Iyeara_1993-1998   (naturally coded; _Iyeara_1993
omitted)

Another paper also uses this model.  The author states, "[The firm fixed
effect] is -ai in [the above equation], and represents an intercept
shift for each firm, incremental to the overall cross-sectional
intercept.  Thus, it is mean zero by construction."

My firm fixed effects do not sum to zero. Can someone help me see what I
am doing wrong? Thank you for your help.

Amy Dunbar
University of Connecticut

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