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st: RE: Question about Hausman test results: V_b - V_B not positive definite


From   DE SOUZA Eric <eric.de_souza@coleurope.eu>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   st: RE: Question about Hausman test results: V_b - V_B not positive definite
Date   Sat, 14 May 2011 13:10:11 +0200

The standard Hausman test for fixed vs random effects is valid under very strict conditions (see Wooldridge's textbook, for instance). Clearly these conditions are not satisfied in your case.

Download the user written routine -xtoverid- and use that instead:
-ssc install xtoverid-
Read the help file first.


Eric de Souza
College of Europe
Brugge (Bruges), Belgium
http://www.coleurope.eu


-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Christina SAKALI
Sent: 14 May 2011 12:21
To: statalist
Subject: st: Question about Hausman test results: V_b - V_B not positive definite

Hello all,

I am running a panel regression with 121 observations. My question regards the choice of fixed effects versus random effects specification.

I carried out a hausman test and the results suggest that I cannot reject the Ho (Prob > 0.05) which I believe it means that the random effects model is preferred for my data.

However I also get the message that the variance of the coefficient difference is not positive definite.

Can someone explain to me what this means and whether I can trust the Hausman test results to be valid. Should I choose the random effects specification as more appropriate for my data?

(Results from hausman test are provided below).

Kind regards,

Christina

. hausman
You used the old syntax of hausman. Click here to learn about the new syntax.


                ---- Coefficients ----
            |      (b)          (B)            (b-B)     sqrt(diag(V_b-V_B))
            |   Consistent   Efficient      Difference          S.E.
-------------+----------------
------------------------------------------------
         gg |    1.130961     1.075676        .0552858               .
      trade |    1.544293     .4932033         1.05109        .4425236
        sec |    3.217286     3.053046        .1642406               .
       tert |    4.319199     3.989446         .329753               .
      trans |    5.480038     5.574542       -.0945033               .
------------------------------------------------------------------------------
                          b = consistent under Ho and Ha; obtained from xtreg
           B = inconsistent under Ha, efficient under Ho; obtained from xtreg

   Test:  Ho:  difference in coefficients not systematic

                 chi2(5) = (b-B)'[(V_b-V_B)^(-1)](b-B)
                         =        5.64
               Prob>chi2 =      0.3427
               (V_b-V_B is not positive definite)

.

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