Hello, I´m a student and currently working on my masters thesis to conclude my accountancy study. My question regards the use of OLS and GLS. I have a large panel data collection, consisting of about 1500 firms, with observations over max. 3 years. So OLS regression is bound to lead to biased errors, since the data have both time series and cross sectional dimensions. Therefore, I have estimated the model using the random effects GLS method, and the model seems to be valid. At the bottom of this mail I included the results. There is however no Rsquare (or equivalent number) available in the output. Is it possible to obtain such a number for GLS? On page 111 and 112 of the instruction manual, it states that GLS is equivalent to OLS using quasi demeaned variables. I don't completely understand the formula however. To obtain the fraction by which the variables should be demeaned, the between and within variances should be filled in to the formula. The Ti in the formula, does it refer to the total number of observations used to construct the model? (I have a total of 2689 firm year observations, so Ti = 2689??). If the variable observations are demeaned by the calculated fraction of the mean of that variable, can I then use these new variables to construct an OLS model which is reliable, and thus obtain a Rsquare? Or is there a simpler way of obtaining a figure stating the the explanatory power of my model? Thanks for the help! Dennis Output of GLS regresion: Model 8: Random-effects (GLS) estimates using 2689 observations Included 1290 cross-sectional units Time-series length: minimum 1, maximum 3 Dependent variable: LNFEE Mean of dependent variable = 13,3439 Standard deviation of dep. var. = 1,20651 Sum of squared residuals = 906,323 Standard error of the regression = 0,584044 'Within' variance = 0,115462 'Between' variance = 0,30521 Akaike information criterion = 4772,68 Schwarz Bayesian criterion = 4967,28 Hannan-Quinn criterion = 4843,07 Breusch-Pagan test - Null hypothesis: Variance of the unit-specific error = 0 Asymptotic test statistic: Chi-square(1) = 485,572 with p-value = 1,30992e-107 Hausman test - Null hypothesis: GLS estimates are consistent Asymptotic test statistic: Chi-square(15) = 113,98 with p-value = 2,76456e-017 Test for normality of residual - Null hypothesis: error is normally distributed Test statistic: Chi-square(2) = 339,203 with p-value = 2,20321e-074 Coefficient Std. Error t-ratio p-value const 3,9247 0,185476 21,1601 <0,00001 *** DMERG -0,0297729 0,023798 -1,2511 0,21102 DYEND 0,148343 0,0355846 4,1687 0,00003 *** CUR -0,0502722 0,00775962 -6,4787 <0,00001 *** LNASS 0,54088 0,0107991 50,0856 <0,00001 *** LEV 0,116304 0,0726841 1,6001 0,10969 RECINV 0,77681 0,108092 7,1865 <0,00001 *** DLOSS 0,0905454 0,0266356 3,3994 0,00069 *** DFORSAL 0,178978 0,0298617 5,9936 <0,00001 *** GROWTH -0,0380927 0,0295275 -1,2901 0,19714 Dagicult -0,284019 0,219346 -1,2948 0,19549 Dmining -0,286592 0,104809 -2,7344 0,00629 *** Dfood -0,120614 0,0970142 -1,2433 0,21388 Dtextiles -0,107272 0,079442 -1,3503 0,17703 Ddrugs 0,132128 0,0813666 1,6239 0,10452 Dchem -0,0255039 0,0904682 -0,2819 0,77803 Drefin -0,344315 0,103874 -3,3147 0,00093 *** Drubbr -0,124968 0,0778424 -1,6054 0,10853 Delectr 0,181519 0,0949686 1,9114 0,05607 * Dmisceq 0,0947427 0,0754278 1,2561 0,20920 Dcompu -0,0075002 0,0749831 -0,1000 0,92033 Dtransp -0,329837 0,089881 -3,6697 0,00025 *** Dutil -0,445682 0,0908753 -4,9043 <0,00001 *** Dretail -0,328033 0,0738928 -4,4393 <0,00001 *** Dbank 0,296416 0,288526 1,0273 0,30435 Dservic -0,0239899 0,0872035 -0,2751 0,78326 Dmiscel -0,313397 0,328379 -0,9544 0,33998 DBIG4_5 0,067776 0,0556034 1,2189 0,22298 DAND -0,468338 0,0386425 -12,1198 <0,00001 *** AUDCHG -0,206686 0,0289029 -7,1511 <0,00001 *** REPLAG 4,23836e-05 0,000167129 0,2536 0,79983 LSEG 0,279646 0,0338728 8,2558 <0,00001 *** ROA -0,0512651 0,0842163 -0,6087 0,54275 _________________________________________________________________ Express yourself instantly with MSN Messenger! Download today it's FREE! http://messenger.msn.click-url.com/go/onm00200471ave/direct/01/