st: RE: difference between robust and cluster option

["Jing Zhou" <jing.zhou@rmit.edu.au>]

thank you for your advisement. I tried cluster and robust in FE model individually, but the results are exactly the same. if "robust" only control for heteroskedasiticity while "cluster" for heteroskedasticity and serial correlation, why there is no difference between the two regressions?

>>> "Ma, Guang" <guang.ma@utdallas.edu> 16/07/2010 2:54 pm >>>
Anyone is welcomed to correct me if I made any mistake.

I think cluster can take good care of both heteroskedasticity and serial correlation, as long as you cluster in a panel way. "robust" is just heteroskedasticity consistent since it uses 1/(1-h)^2 as weights. Check this paper: Petersen, M. A. 2009. "Estimating standard errors in finance panel data sets: Comparing approaches." Review of Financial Studies 22 (1): 435-480.


Guang Ma
Accounting Department
The University of Texas at Dallas
School of Management, SM41
Richardson, TX 75080



-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Jing Zhou
Sent: Thursday, July 15, 2010 8:34 PM
To: statalist@hsphsun2.harvard.edu 
Subject: st: difference between robust and cluster option

To control for the heteroskedasticity and serial correlation in FE and RE models, do I need to add only "robust" or both "robust"and "cluster" option in the corresponding command? And after this remedy, is it unnecessary to worry about the two problems? 


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