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correcting heteroskedasticity in panel data

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correcting heteroskedasticity in panel data

Perger, Orsolya
Hi,
I 'd like to get some expert advice on how to correct for
heteroskedasticity in panel data.
I have a perfectly balanced panel with N=32 group and each of them have
T=15 time period. I have to use random effect model , as most of my
independent variables are not changing within the paneI.
(I am using  stata 11, student version. )

I  followed the heteroskedasticity test described in the FAQ using xtgls
(http://www.stata.com/support/faqs/stat/panel.html ) .
The following test I have done:
xtgls depvar indvars, igls panels(heteroskedastic)
estimates store hetero
xtgls depvar indvars
local df = e(N_g) - 1
lrtest hetero  . , df(`df')
result:
"Likelihood-ratio test                                  LR chi2(31) =
322.61
(Assumption: . nested in hetero3)                      Prob > chi2 =
0.0000"

So I clearly have a heteroskedasticity problem.  (I have tested , no
sign of autocorrelation)
Based on what I know, I have 2 options:

Option1: I can use the white robust standard error to correct
heteroskedasticity based on the manual
Xtreg depvar indvars, vce(robust)

Option2:  Or I can use the xtgls, since the LR test supported this
version:
xtgls depvar indvars, igls panels(heteroskedastic)

My problem is that significance of some of my independent variables are
different under the 2 options. One of my most important variable(a
dummy) is significant under the second option, but not under the first
one.  I do not know which one is the "true" value. Anybody can offer me
some advice?
Thanks
Orsolya Perger


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