Dear Samuel,
I have recently run into the same problem with my panel data set but have
come across an excellent paper by Mitchell Petersen of Kelogg University,
dated April 2008 with title 'Estimating standard errors with finance data
sets: comparing approaches' which I would highly recommend to you.
The basic result from the paper is that 'it depends': it depends on what you
are trying to estimate and what sort of dependence exists among your
observations. E.g. fixed year effects with clustering by firm may remove
only fixed time effects but not decaying ones.
Hope this helps,
Dino K.
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Samuel
Finkelstein
Sent: Saturday, January 10, 2009 3:09 PM
To: [email protected]
Subject: st: Appropriate Use of Two Way Fixed Effects
I am trying to figure out whether or not it is appropriate to use
two-way fixed effects given the data I am currently using.
My dataset consists of 150 firms with single yearly observations for
each firm from 1990 to 2005. The primary independent variable of
interest is a binary variable. Thus, for any given year, Firm A (or
any other firm in the set) will only have a single observation. I was
originally using a yearly fixed effect and clustering by firm.
However, at a recent conference I was told that I may need to use
two-way fixed effects (i.e. a year and firm fixed effect) instead of
clustering.
I have discussed this with a number of people and some have told me
that this is appropriate, while others have told me that I cannot use
two-way fixed effects with only a single observation for each firm in
each year. The two different methods give me very different results.
Can someone please tell me whether it is or is not appropriate to use
two-way fixed effects given my data?
Any response would be greatly appreciated.
Thanks,
Samuel
*
* 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/
*
* 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/
