Re: st: Setting some coefficients to zero in a panel probit regression

[Nick Baker <nb419@cam.ac.uk>]

Thank you very much for your help Maarten, 

I have implemented the first part of the method, but am unsure about the 
second aspect: "Add the lag an interaction term between the indicotor 
variable and the lagged variable". Do I use the interaction terms as 
regressors instead of the lagged returns or do I use the sum of the 
interaction terms and the lagged returns as regressors?
Many thanks for you help,

Nick Baker

On Apr 8 2013, Maarten Buis wrote:

> On Sun, Apr 7, 2013 at 4:17 PM, Nick Baker wrote:
> > I am estimating the model with 12 lagged monthly returns. The 
> > coefficients on lagged returns are assumed to be equal across funds, 
> > with the exception of those cases where a fund has fewer than 12 
> > historical returns.
> > In such a case the authors set the coefficients on lagged returns equal 
> > to zero if the corresponding return is unobserved.
> > I am entirely stumped as to how to implement such a procedure in Stata 
> > and was wondering if anyone else had encountered a similar problem.
> Say the problem is just the 12th lag, then you create an indicator
> variable whether or not the lag should be included in your model. Than
> replace that lagged variable with any non-missing constant (e.g. 0)
> when it should not be included in your model. Add the lag an
> interaction term between the indicotor variable and the lagged
> variable. The coefficient for the lagged term when it should not be
> included in your model is automatically dropped from your model (i.e.
> set to 0) because the lagged variable will than be constant and thus
> colliniear with the constant. You can easily extend this strategy to
> the 11th lag, 10th lag, etc.
>
> However, I don't think this is a good idea. You added 12 lags because
> you wanted to adjust your coefficients for 12 lags. Now you get some
> mixture of adjusting for 12 lags, 11 lags, 10 lags, etc., so who knows
> what your results mean?
>
> Hope this helps,
> Maarten
>
> ---------------------------------
> Maarten L. Buis
> WZB
> Reichpietschufer 50
> 10785 Berlin
> Germany
>
> http://www.maartenbuis.nl
> ---------------------------------
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