QUESTION 1

Panel data (longitudinal) is a dataset in which the behaviour of entities is observed across time. These entities could be states, companies, individuals, countries, etc. Fixed effect model (FEM) refers to the model where the amounts of each element were predetermined before the experiment and emphasis on the variations in how each level responded. The random effect model (REM) considers variables whose values are intended to be representative of the population.

Assuming the following model.

where  = Stock price,  = Return on Equity,  = Return on Asset,  = Size of firm,  = constant, , ,  = coefficients of exogenous variables,  = disturbance.

Instruction:

You are required to conduct the empirical analysis via EVIEWS software using the data provided (Firm Data in Excel file). All the data are in logarithm form.

1. Perform the descriptive statistics of the data and show the results in a Table.- 5 page.
2. Perform the Pooled OLS, Random Effect Model and Fixed Effect Model and present the results in a Table. – 1 page.
3. Perform the relevant tests to select which model is appropriate and explain:
   1. Pooled OLS and Random Effect Model (based on 10% significance level)- 0.5 page
   2. Random Effect Model and Fixed Effect Model (based on 10% significance level)- 0.5 page

Interpret the results based on the model selected (based on 10% significance level)    -0.5 page