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

[Maarten Buis <maartenlbuis@gmail.com>]

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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