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Re: st: Chi-squared test for independence of observed and expected frequencies

From   Maarten buis <>
Subject   Re: st: Chi-squared test for independence of observed and expected frequencies
Date   Thu, 15 Jul 2010 16:26:14 +0000 (GMT)

--- On Thu, 15/7/10, Marc Michelsen wrote:
> I am trying to copy the approach of Dittmar/Thakor (2007)
> "Why do firms issue equity?" 

Please report a complete reference.

> p. 27: The authors divide their sample of debt and equity
> issuers into quartiles based on two explanatory variables,

That is a horrible idea: You are throwing away huge amounts
of information. Just use your favourite regression like model
with your dependent variable your independent variables. If
you worry about functional form, use splines.

> I have managed to build the 4x3 matrix of observed and
> expected frequencies using the user-written program ".
> tabchi [1. Dimension] [2. Dimension]". However, I struggle
> to conduct this chi-squared test for independence to
> determine if there are more or fewer firms than expected
> in each category.

You are already done, the chi square test will only give 
you this overall measure of whether your table deviates
from independence, it will not give you a cell by cell 

If you want to model patterns in your table you will 
have to use what sociologists call loglinear models,
see (Hout 1983) for an introduction. You don't want to 
go there unless you really need to. You don't need to, 
since you should not do this anyhow, as you should not 
waste the valuable information you have by only using 
the quartiles.

Hope this helps,

Mike Hout (1983) "Mobility Tables". Quantitative 
Applications in the Social Sciences, nr. 31. Thousand
Oaks: Sage.

Maarten L. Buis
Institut fuer Soziologie
Universitaet Tuebingen
Wilhelmstrasse 36
72074 Tuebingen


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