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From |
jean-luc morin-chesnel <[email protected]> |

To |
[email protected] |

Subject |
st: understanding weights in a -xtreg panel regression |

Date |
Sat, 9 Nov 2013 14:39:13 +0100 |

Dear all, I would like to understand what the weights do in a fixed effect regression using -xtreg in Stata. So assume I run the following model Y_it=Alpha + Beta*X_it + Epsilon_i + Epsilon2_it (where I keep Stata's definition of a fixed effect regression: i.e. a baseline constant and an individual time-invariant error term) Consider that Y_it is a return earned on some investment done by investor i at time t, and that I would like to weight the returns by the amount engaged on each investment (M_it). That is higher returns earned when the amount engaged is high should be more "important" than higher returns earnied when the amount is lower. Should I type -xtreg Y X [aw=M], fe ? Are the weight defined separately for each investor? Which weights should I use? I am confused by the definition of aweight (or analytic weights, are weights that are inversely proportional to the variance ofan observation; that is, the variance of the jth observation is assumed to be sigma^2/w_j, where w_j are the weights.) Are they appropriate in that situation? Many thanks for your help and remarks * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/faqs/resources/statalist-faq/ * http://www.ats.ucla.edu/stat/stata/

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