help xtfmbversion: 2.0.0 -------------------------------------------------------------------------------

Title

xtfmb- Fama and MacBeth (1973) procedure

Syntax

xtfmbdepvar[indepvars] [if] [in] [weight] [,level(#)verboselag(#)]

Notes- You must

tssetyour data before usingxtfmb. -by, may be used withxtfmb; see by. -aweights are allowed; see weight.

Description

xtfmbis an implementation of the Fama and MacBeth (1973) two step procedure. The procedure is as follows: In the first step, for each single time period a cross-sectional regression is performed. Then, in the second step, the final coefficient estimates are obtained as the average of the first step coefficient estimates.If

xtfmbis called without optionlag(#), then it is possible to test for the significance of coefficient combinations. This works because in this case the second step of the Fama-MacBeth procedure is implemented by aid of Zellner's SUR estimation.When

xtfmbis called with optionlag(#), then heteroscedasticity and autocorrelation consistent Newey-West (1987) standard error estimates are provided. However, in this case the current implementation ofxtfmbdoes not allow for testing the significance of coefficient combinations.The "avg. R-squared" which is provided in the header of the

xtfmbprogram is computed as the average value of the R-squares from the cross-sectional regressions in the first step of the Fama-MacBeth procedure. The coefficient estimates and R-squares of the first step regressions can be printed out with optionverbose.

Options

level(#); see estimation options.

verboselists the coefficient estimates and R-squares of the cross-sectional regressions from the first step of the Fama-MacBeth procedure.

lag(#)computes heteroscedasticity and autocorrelation consistent Newey-West (1987) standard error estimates with a lag length of # periods.

Example. webuse grunfeld . xtfmb invest mvalue kstock, verbose . est store FMB

. xtfmb invest mvalue kstock, lag(2) . est store FMB_Newey

. reg invest mvalue kstock . est store OLS

. est table *, b se t

References- Fama, E.F., and J.D. MacBeth, 1973, Risk, Return, and Equilibrium: Empirical tests,

Journal of Political Economy81, 607-636.- Newey, W.K., and K.D. West, 1987, A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix,

Econometrica55: 703Ð708.

AuthorDaniel Hoechle, University of Basel, daniel.hoechle@unibas.ch

Also seeManual:

[R] regressOnline:

tsset,regress,newey,xtreg,_robust