I'm performing a Hausman test in Stata 11. After the test the conclusion is to use FE panel model. In my model I have 6 variables. In FE model only one has a significant effect and in RE model 4 variables have a significant effect on the dependent variable. What do you suggest? To use FE model based on results of Hausman test or you have some other solution?
Solved – Hausman test – wrong conclusion
hausmanhypothesis testingpanel datastata
Best Answer
Statistical significance doesn't mean the model is good. In fact, in this case, it's probably a sign that it's bad.
If your model is misspecified your estimate of the model variance could be wrong. Statistical significance depends on that estimate. If that estimate is wrong, you will get erroneous t-statistics and therefore p-values and therefore, possibly, erroneously significant coefficients at your desired confidence level. I say go with what the Hausman test says.