What is country fixed effect?
Yes, country fixed effects means that there is a dummy for each country (except for one). So the country specific fixed effect is modeled as a country specific intercept which does not vary over time.
What does industry fixed effects do?
Essentially add industry specific constant terms (/dummies) to a regression model. In the context of a cross-sectional asset pricing regression this intuitively captures the mean return of all stocks in the same industry.
What is a time fixed effect?
Time fixed effects change through time, while individual fixed effects change across individuals. Think of time fixed effects as a series of time specific dummy variables. For example, the dummy for individual j = 1 along the whole time period you are considering.
What do year fixed effects do?
Just like the post period dummy variable controls for factors changing over time that are common to both treatment and control groups, the year fixed effects (i.e. year dummy variables) control for factors changing each year that are common to all cities for a given year.
When to use industry fixed effects and when to used firm?
On the other hand, all studies I reviewed, that employ a credit rating regression, do not include firm-fixed effects (but rather cluster standard errors by firm). E.g. Kuang / Qin 2013 argue that “Prior literature and anecdotal evidence suggest the presence of firm and time effects on credit ratings.
Which is an example of a firm level fixed effect?
A classic example is if you have many observations for a panel of firms across time. You can account for firm-level fixed effects, but there still may be some unexplained variation in your dependent variable that is correlated across time.
Can a firm or time effect be fixed?
The assumption of constant firm or time effect may not fully remove the dependence between observations and therefore will produce biased standard errors if the firm or time effect is indeed not fixed (Petersen, 2009; Gow et al., 2010).
Do you include firm fixed effects in OLS regression?
I run an OLS regression with firms’ S&P credit rating as my dependent variable and typical rating variables (Leverage, ROA, Size, etc) as my independent variables. I include time-fixed and industry-fixed effects because credit rating models change over time and differ across industries.