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normality of variables

 
 
Reply Fri 4 Oct, 2013 03:05 am
I'm using an unbalanced datapanel (financial data) with 576 observations to estimate a fixed effects model with Stata 12.0. Tests indicate first order autocorrelation and heteroscedasticity of the error term, therefore I use robust standard errors. The command

xtreg depv indv1 indv2 indv3 indv4 indv5 indv6 indv7 indv8 indv9 indv10, fe vce (ro)

can be run without problems and delivers satisfactory results without any obvious irregularities.

However, the descriptive statistics show above normal skewness and kurtosis of the independent variables. I. e. the independent variables INDV1 to INDV10 used to estimate the FE model are non-normally distributed:

var obs mean std.- min max skewn. kurtosis
dev.
----------------------------------------------------------------
depv 576 -0.123 0.279 -0.805 0.815 0.322 3.187
indv1 576 0.820 0.260 0.171 1.001 -1.261 3.228
indv2 576 -0.007 0.757 -14.255 5.389 -11.511 229.900
indv3 576 0.000 0.091 -0.310 0.581 0.790 7.727
indv4 576 0.669 0.234 0.231 1.100 0.082 1.612
indv5 576 0.486 0.236 0.000 3.030 2.301 28.001
indv6 576 0.050 0.989 -2.549 1.492 -0.74 2.671
indv7 576 0.378 0.621 0.014 7.721 8.651 86.881
indv8 576 0.024 0.037 0.002 0.250 3.501 16.339
indv9 576 0.041 0.117 0.001 0.570 3.410 13.440
indv10 576 2.073 6.638 0.002 63.120 5.555 37.301

Questions:

- Does xtreg estimate the FE-model correctly, despite non-normality of the independent variables?

- If not, will I have to normalize the independent variables before using xtreg?

Any comments are welcome!
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