I have macroeconomic variables as Independent variables and sectoral stock returns as Dependent variables. If I run Panel data, these sectors will be cross-sectional units . But national level macroeconomic variables (Independent variables) will be same for each such cross section (sectors of the economy), even though they will vary over time within each cross section. Is Panel data analysis feasible in such a scenario? If yes, then it is usual OLS procedure or any other special variant?
Dear Arnav
I think it is oke
But in the case of panel data analysis, you might want to learn more about FEM, REM, 2SLS, LSDV and GMM as well. It depends on your data and the results of OLS estimation to test and then choose other models for your data
Best
Canh
It's OK to include variables that vary in time but not in cross-section. (The obvious example is a time trend.) To avoid multicolinearity, you must then not also include time-period fixed effects. The traditional LSDV ("Least Squares with Dummy Variables") estimator for panels with cross-section fixed effects is still valid. As Nguyen Phuc Canh has said, there may also be other estimators worth consideration.
Thank you very much, Canh & Vince. Really appreciate guidance from both of you.
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