Issues? Consequences? How to test? How to resolve?

F-test:
VIF test
BP test and White test Drop insignificant variables
1. Unnecessary - Multi-collinearity
- Heteroskedasticity (CEOSAL2) when the model suffers
variables collinearity
reg salary age college comten
ceoten sales mktval
test age college comten

- RESET for omitted variables

(CRIME1)
Problem
specification reg narr86 pcnv avgsen ptime86
qemp86 - Add control variables/
instrument variables (in case
Biased results predict yhat of omitted variables)
2. Omitted Low R2 gen yhatsq=yhat^2
variables [Endogenous gen yhatcu=yhat^3 - GMM model
problem] - Heckman model
reg narr86 pcnv avgsen ptime86
qemp86 yhatsq yhatcu (in case of endogenous
problem)
test yhatsq yhatcu
- Hausman test for endogeneity
(CEOSAL2)
 reg salary age college comten
ceoten sales mktval
reg age college comten ceoten
sales mktval grad profmarg
predict age_res, re
reg salary age college comten
ceoten sales mktval age_res

Replace the variable(s) suffered

Show (display) the variable missing values
3. Missing data Small sample size
structure Using other instrument
variables

Exclude outliers from 1% or

4. Outliers Biased results Visual graphs
2.5%

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