Interpretation RESET-Test: Problems with different test options

[matthias.stoetzer@bw.fh-jena.de]

Dear STATA community,

in order to test for specification errors I use the RESET-test. I 
understand that RESET is not a test for omitted variables but more a test 
looking for non-linearities.
I have two problems as to the interpretation of my results:

1. There is a striking difference of the RESET test using powers of the 
fitted values of the dependent variable (default-option) and using powers 
of the independent variables (rhs-option). In the first case with my data 
set the Ho has to be rejected (5%-level). In the second case the Ho can 
not be rejected even at the 40%-level. For sure this has to do with a 
difference of the dependent and independet variables but is there any 
precise explanation as to this difference? 

2. I run a multiple regression. The RESET-test (default-option) does not 
reject the Ho of correct specification (10% level). I run a regression 
with the same dependent variable and the same independent variables but in 
addition I include one other independent variable: Now the RESET-test 
(default-option) rejects the Ho of correct specification. To my opinion 
including additional variables should reduce the probability of omitting 
variables and neglecting non-linearities. 

In advance many thanks for any suggestions!

Matthias S. 

*
*   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/