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From |
Christopher Baum <kit.baum@bc.edu> |

To |
"statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu> |

Subject |
re: st: One question about XTOVERID |

Date |
Wed, 28 Dec 2011 12:01:09 -0500 |

<> I saw a lot of introduction about XTOVERID on internet. But i still have one simple question. When using XTOVERID determine FE and RE, can anybody tell me what is the null hypothesis? For instance, in my case, when running XTOVERID, my p-value is bigger than 0.1. Does it mean FE model is better? As the help file for Schaffer & Stillman's -xtoverid- (from SSC) explains, the "Hausman test" for FE vs RE can also be cast as a test of the additional overidentifying restrictions that RE imposes. FE (xtreg, fe) is consistent iff X \perp \epsilon, where X contains regressors and \epsilon is the idiosyncratic error. FE does not require that X \perp u, where u is the fixed effect. RE does require that X \perp u, so there are additional overidentifying restrictions associated with RE. The null of either the Hausman form of the test or of the test performed by xtoverid is that RE is consistent. A large value of the test statistic (or a small p-value of the statistic) is a rejection of that null, saying that RE is inconsistent. If you are getting a p-value of 0.15 or 0.20, then the evidence against RE is not that strong, and you can get away with the RE assumptions on the error process. Kit Kit Baum | Boston College Economics & DIW Berlin | http://ideas.repec.org/e/pba1.html An Introduction to Stata Programming | http://www.stata-press.com/books/isp.html An Introduction to Modern Econometrics Using Stata | http://www.stata-press.com/books/imeus.html * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: One question about XTOVERID***From:*Tingting Tong <pumpkinting@gmail.com>

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