Hello everyone,

I am not sure if a combination of a time-fixed-efffects model and a Differences-in-Differences model is possible and if it is, how to correctly compute that within stata. Further, I wanted to confirm that my Standard Errors are clustered on Entity Level and if a wrong technical command within stata leads to my very low R².

I am researching on the impact of the introduction of the Financial Transaction Tax in France on stockmarket quality Parameters like tradingvolume and volatility. To answer this Question I choose the differences-in-differences Approach on my paneldata, using the command:

xtreg tradingvolume controls TimeDummy TreatmentDummy InteractionTermTimeTreatment , fe robust

The fixed-effects within the regression are based on my EntityID variable, so from my point of view, I control for factors that are different between enities but are constant over time.
Within the next step, I want to controll for time fixed effects, which from my point of view are factors, that are constant across different entities, but vary over time. For this I added the i.year command to my regression:

xtreg tradingvolume controls TimeDummy TreatmentDummy InteractionTermTimeTreatment i.Year , fe robust

These regressions lead to the following results:

Array

From my perspective, the Addition of time-fixed-effects works quite well, because my SE increase without losing significance of my Interactionterm. Further my R² increased also.
Qualitativly my estimators are in line with leading literature. Another constrain regarding my Analysis for me is, that within the Literatur R² above 0,9 are reached, although they use the same Approach based on similar data. I am afraid, that I use a command technically wrong within stata and just wanted to double check.

Last Question regarding this: Using the xtreg, y x, fe robust command I get the notification "(Std. Err. adjusted for 118 clusters in EntityID)". Does this mean my Standard Errors are clustered on Entity Level?

I appreciate every Kind of help!

Johann from Hamburg