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st: XTIVREG2: Are my instruments proper?


From   "Ayesha Malhotra" <ayesha.malhotra@haskayne.ucalgary.ca>
To   "Ayesha Malhotra" <ayesha.malhotra@haskayne.ucalgary.ca>
Subject   st: XTIVREG2: Are my instruments proper?
Date   Mon, 26 Dec 2011 17:23:01 -0700 (MST)

Dear Statalist,

Happy Holidays!

I have two sets of results below. In the first fe regression, the main
endogenous variable "wlggluwmktsh" is a significant predictor and the
instruments are acceptable based on the 3 tests reported by xtivreg2.

In the second regression, I add year dummies. Now, the endogenous variable
is NOT significant and the 3 tests for valid/strong instruments are still
met.

I'm not clear why the regressor becomes insignificant in the second
regression. Isn't it the purpose of the first IV regression to account for
omitted variable issues?

Thanks in advance for your guidance.

Best wishes,

Ayesha
Ayesha Malhotra
Assistant Professor, Strategy & Global Management
Haskayne School of Business, University of Calgary

FIRST REGRESSION
. xtivreg2 wuwmktsh wlgrivalussh wlgrivalusshsq lgintmarg lglogassetsmd
lgsigmrg wlgassetgr lgassetdiversity wlgroa lgmnyctr (wlggluwmktsh
> wlgciussh=wlgsigfordep l.wlggluwmktsh l.lgciussh), fe cluster(entity)
Warning - singleton groups detected.  6 observation(s) not used.

FIXED EFFECTS ESTIMATION
------------------------
Number of groups =        77                    Obs per group: miN=         2
                                                               avg =     
11.2
                                                               max =      
 22

IV (2SLS) estimation
--------------------

Estimates efficient for homoskedasticity only
Statistics robust to heteroskedasticity and clustering on entity

Number of clusters (entity) = 77                      Number of obs = 859
                                                      F( 11,    76) =  7.43
                                                      Prob > F      =  0.0000
Total (centered) SS     =  1417.794625                Centered R2   =  
0.6587
Total (uncentered) SS   =  1417.794625                Uncentered R2 =  
0.6587
Residual SS             =  483.9461722                Root MSE      =   
.7867

------------------------------------------------------------------------------
             |               Robust
    wuwmktsh |      Coef.   Std. Err.      z    P>|z|     [95% Conf.
Interval]
-------------+-------------------------------------------------------------wlggluwmktsh
|   1.090995    .086687    12.59   0.000     .9210911   260898
Other results removed...

------------------------------------------------------------------------------
Underidentification test (Kleibergen-Paap rk LM statistic):  10.050
                                                   Chi-sq(2) P-val = 0.0066
------------------------------------------------------------------------------
Weak identification test (Kleibergen-Paap rk Wald F statistic):    14.625
Stock-Yogo weak ID test critical values: 10% maximal IV size       13.43
                                         15% maximal IV size        8.18
                                         20% maximal IV size        6.40
                                         25% maximal IV size         5.45
Source: Stock-Yogo (2005).  Reproduced by permission.
NB: Critical values are for Cragg-Donald F statistic and i.i.d. errors.
------------------------------------------------------------------------------
Hansen J statistic (overidentification test of all instruments):    0.980
                                                   Chi-sq(1) P-val = 0.3221
------------------------------------------------------------------------------
Instrumented:         wlggluwmktsh wlgciussh
Included instruments: wlgrivalussh wlgrivalusshsq lgintmarg lglogassetsmd
                      lgsigmrg wlgassetgr lgassetdiversity wlgroa lgmnyctr
Excluded instruments: wlgsigfordep L.wlggluwmktsh L.lgciussh

SECOND REGRESSION - HAS TIME DUMMIES

 xtivreg2 wuwmktsh wlgrivalussh wlgrivalusshsq lgintmarg lglogassetsmd
lgsigmrg wlgassetgr lgassetdiversity wlgroa lgmnyctr yrdum1-yrdum23
>  (wlggluwmktsh wlgciussh=wlgsigfordep l.wlggluwmktsh l.lgciussh), fe
cluster(entity)
Warning - singleton groups detected.  6 observation(s) not used.
Warning - collinearities detected
Vars dropped:  yrdum1 yrdum23

FIXED EFFECTS ESTIMATION
------------------------
Number of groups =        77                    Obs per group: min =      
  2
                                                               avg =     
11.2
                                                               max =      
 22

IV (2SLS) estimation
--------------------

Estimates efficient for homoskedasticity only
Statistics robust to heteroskedasticity and clustering on entity

Number of clusters (entity) = 77                      Number of obs =     
859
                                                      F( 32,    76) = 
6476.04
                                                      Prob > F      =  
0.0000
Total (centered) SS     =  1417.794625                Centered R2   =  
0.8120
Total (uncentered) SS   =  1417.794625                Uncentered R2 =  
0.8120
Residual SS             =  266.5785924                Root MSE      =   
.5839

---------------------------------------------------------------------------
             |               Robust
    wuwmktsh |      Coef.   Std. Err.      z    P>|z|     [95% Conf.
Interval]
-------------+----------------------------------------------------------------
wlggluwmktsh |   .0616593   .1000854     0.62   0.538  .1345045    .2578231

Some other results removed....
      yrdum2 |  -30.33265   2.549937   -11.90   0.000    -35.33044  
-25.33487
      yrdum3 |  -30.94688   2.592648   -11.94   0.000    -36.02838  
-25.86539
      yrdum4 |  -29.49283   2.483674   -11.87   0.000    -34.36075  
-24.62492
      yrdum5 |  -29.74965   2.509561   -11.85   0.000     -34.6683  
-24.83101
      yrdum6 |  -29.20278   2.466175   -11.84   0.000    -34.03639  
-24.36916
      yrdum7 |   -28.2574   2.399218   -11.78   0.000    -32.95978  
-23.55502
      yrdum8 |  -25.69739   2.217672   -11.59   0.000    -30.04395  
-21.35083
      yrdum9 |  -21.18458   1.941362   -10.91   0.000    -24.98958  
-17.37958
     yrdum10 |  -21.14397   1.959225   -10.79   0.000    -24.98398  
-17.30396
     yrdum11 |  -19.71581   2.089331    -9.44   0.000    -23.81082   
-15.6208
     yrdum12 |  -12.39363   1.355772    -9.14   0.000    -15.05089  
-9.736362
     yrdum13 |  -9.591614   1.271486    -7.54   0.000    -12.08368  
-7.099548
     yrdum14 |  -7.524386   .8318182    -9.05   0.000     -9.15472  
-5.894053
     yrdum15 |  -7.845728   .8834701    -8.88   0.000    -9.577297  
-6.114158
     yrdum16 |  -8.041389   .9002762    -8.93   0.000    -9.805898   
-6.27688
     yrdum17 |  -8.088559   .9122472    -8.87   0.000     -9.87653  
-6.300587
     yrdum18 |  -10.25239   1.067351    -9.61   0.000    -12.34436  
-8.160416
     yrdum19 |  -11.51903   1.186703    -9.71   0.000    -13.84492  
-9.193134
     yrdum20 |  -9.931895   1.189907    -8.35   0.000    -12.26407  
-7.599721
     yrdum21 |  -4.975506   .7196383    -6.91   0.000    -6.385971  
-3.565041
     yrdum22 |  -4.745704   .6567907    -7.23   0.000    -6.032991  
-3.458418
------------------------------------------------------------------------------
Underidentification test (Kleibergen-Paap rk LM statistic):   11.455
                                                   Chi-sq(2) P-val = 0.0033
------------------------------------------------------------------------------
Weak identification test (Kleibergen-Paap rk Wald F statistic):  36.383
Stock-Yogo weak ID test critical values: 10% maximal IV size      13.43
                                         15% maximal IV size       8.18
                                         20% maximal IV size        6.40
                                         25% maximal IV size        5.45
Source: Stock-Yogo (2005).  Reproduced by permission.
NB: Critical values are for Cragg-Donald F statistic and i.i.d. errors.
------------------------------------------------------------------------------
Hansen J statistic (overidentification test of all instruments): 2.155
                                                   Chi-sq(1) P-val = 0.1421
------------------------------------------------------------------------------
Instrumented:         wlggluwmktsh wlgciussh
Included instruments: wlgrivalussh wlgrivalusshsq lgintmarg lglogassetsmd
                      lgsigmrg wlgassetgr lgassetdiversity wlgroa lgmnyctr
                      yrdum2 yrdum3 yrdum4 yrdum5 yrdum6 yrdum7 yrdum8 yrdum9
                      yrdum10 yrdum11 yrdum12 yrdum13 yrdum14 yrdum15 yrdum16
                      yrdum17 yrdum18 yrdum19 yrdum20 yrdum21 yrdum22
Excluded instruments: wlgsigfordep L.wlggluwmktsh L.lgciussh
Dropped collinear:    yrdum1 yrdum23
------------------------------------------------------------------------------

.


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