Hi All,

I have read several manuals on panel data econometrics but I never found the answer to these very basic questions.

I have a panel data with about T=1,000 days (per stock) and N=5,000 stocks. I want to regress daily cumulated returns (over a 21-horizon) over a set of variables (some of which are persistent).
  1. How do I decide whether to include time fixed effects (i.e. time dummies)?
  2. If so, do I need to do so based on the frequency of the data (i.e. include daily dummies if I have daily data and so on)?
  3. I’m interested in making inference about the CROSS-SECTION i.e. whether stocks with a certain characteristic have higher or lower returns. If I include stock fixed effects does my coefficient have more a time-series interpretation instead because it is like using the "within-estimator"?
  4. If I cluster the standard errors in the time dimension, do I need to do so based on the frequency of the data (i.e. cluster by day if I have daily data and so on)?
  5. Can I double cluster standard errors even if I do not include stock and time dummies?
Thanks a lot!

Max