st: tests after xtabond2

[Carmen Jones <jcarmen1203@gmail.com>]

Dear Statalist,

I am struggling to understand a few things, especially results for 
Hansen tests after running xtabond2. (I did read the help file and how 
to do xtabond2 article).

I am using the following command:

/xtabond2 Y L.Y L(0/1).(teaching size dsh cmi wage outlier X1 X2 X3)  
year2007 year2008 year2009 year2010 year2011 year2012,  gmm//(L.(Y X1 X2 
X3), c) iv( L(0/1).(teaching size dsh//cmi wage outlier)) iv(year2007 
year2008 year2009 year2010 year2011 year2012) iv(L.(Z1 Z2 Z3)) robust/

And I get the following test results (data for 6 years; X1, X2 and X3 
are endogenous variables; Z1, Z2 and Z3 are additional exogenous 
instruments; 40 instruments total):

/Instruments for first differences equation
  Standard
    D.(L.Z1 L.Z2 L.Z3)
    D.(year2007 year2008 year2009 year2010 year2011 year2012)
    D.(teaching L.teaching size L.size dsh L.dsh cmi L.cmi wage L.wage 
outlier
    L.outlier)
  GMM-type (missing=0, separate instruments for each period unless 
collapsed)
    L(1/5).(L.Y L.X1 L.X2 L.X3) collapsed
Instruments for levels equation
  Standard
///L.Z1 L.Z2 L.Z3/
    year2007 year2008 year2009 year2010 year2011 year2012
    teaching L.teaching size L.size dsh L.dsh cmi L.cmi wage L.wage outlier
    L.outlier
    _cons
  GMM-type (missing=0, separate instruments for each period unless 
collapsed)
    D.(///L.Y L.X1 L.X2 L.X3/) collapsed
------------------------------------------------------------------------------
Arellano-Bond test for AR(1) in first differences: z = -15.16 Pr > z =  
0.000
Arellano-Bond test for AR(2) in first differences: z =   1.15 Pr > z =  
0.248
------------------------------------------------------------------------------
Sargan test of overid. restrictions: chi2(16)   =  91.42  Prob > chi2 =  
0.000
  (Not robust, but not weakened by many instruments.)
Hansen test of overid. restrictions: chi2(16)   =  55.95  Prob > chi2 =  
0.000
  (Robust, but weakened by many instruments.)

Difference-in-Hansen tests of exogeneity of instrument subsets:
  GMM instruments for levels
    Hansen test excluding group:     chi2(12)   =  51.14  Prob > chi2 
=  0.000
    Difference (null H = exogenous): chi2(4)    =   4.81  Prob > chi2 
=  0.307
  iv(teaching L.teaching size L.size dsh L.dsh cmi L.cmi wage L.wage 
outlier L.outlier)
    Hansen test excluding group:     chi2(4)    =  26.13  Prob > chi2 
=  0.000
    Difference (null H = exogenous): chi2(12)   =  29.82  Prob > chi2 
=  0.003
  iv(year2007 year2008 year2009 year2010 year2011 year2012)
    Hansen test excluding group:     chi2(12)   =  22.29  Prob > chi2 
=  0.034
    Difference (null H = exogenous): chi2(4)    =  33.66  Prob > chi2 
=  0.000
  iv(////L.Z1 L.Z2 L.Z3//)
    Hansen test excluding group:     chi2(13)   =  51.51  Prob > chi2 
=  0.000
    Difference (null H = exogenous): chi2(3)    =   4.44  Prob > chi2 
=  0.218

/My questions are:

1) What does the Hansen test tell me? I have tried adding more lags but 
the p-value remains close to 0 and I only have 6 periods available. Is 
there anything I can do about it? Should I care about it?
2) Looking at the Hansen and difference tests for the different groups 
of variables, it seems that the year dummies, for example, are a 
problem. How do I change this given that time dummies are important to 
include if I understand correctly?

Overall, I am trying to understand what I am doing wrong.

Thank you!

Carmen




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