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st: fixed effect and random effect models

From   "Gary Tian" <>
To   <>
Subject   st: fixed effect and random effect models
Date   Mon, 22 Oct 2007 18:36:11 +1000

Dear Stata users,


This question might have already been asked and answered here. I have a
problem in choosing between pooled regression, fixed and random. The problem
might be too simple to ask but your answer would be highly appreciated.

I have unbalanced firm data: 50 firms, some firms have long data than
others. I have run a simple Lintener model with change in dividend as
function of earnings and dividend lag. 

(1) ASSUME THE x'S were independent of the omitted fixed effects; the
Breusch-Pagan test (Greene pp. 298-299) would make sense. The result does
not reject, so prefer pooled regression.

(2) Then I also run Hausman test to see whether fixed effect model might be
a right one:

(2.1) compare fixed with random: indicating rejecting the consistent under
null, so prefer the fixed.

(2.2) also compare fixed with pooled regression: also reject the pooled

However, the fixed effect model itself has insignificant F test that all
u_i=0, P-value is bigger than even 10%. 




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