Time Series issues

[Nicole Swanson]

Hi there,

I have a time series data that tracks companies' stock prices over time. As far as I am concerned, there are several issues when OLS is used with time series data. For example,

• 1. Errors correlated over time—high errors today = high next time (biased standard errors but not biased coefficients)
• 2. Effects may take a while to appear, difficult to know how long should wait to see effects (tax cuts—is growth in Clinton years due to Clinton? Reagan?) (specification problem)
• 3. Feedback effects (x causes y but after seeing y, policy makers adjust x) (specification problem—can lead to biased coeffs)
• 4. Trending data over time - data series can look like they are related, but really is “spurious” (biased coeffs)

How do I go about formally testing these issues in Stata?

[Phil Bromiley]

You'll increase your chances of a helpful answer by following the FAQ on asking questions - provide Stata code in code delimiters, readable Stata output, and sample data using dataex.

It sounds like you have panel data. Look at the panel data documentation including xtreg. Also look at the regress and regress postestimation documentation. After you've made a real effort to solve your own problems, come back with the remaining questions.