Hello all,

I'm currently working on a cross-section with iveg2 (gmm2s to address the heteroskedasticity in my data) . My baseline model passes the instrument validity and endogeneity tests. But when I go for channel testing with addition of other variables and interactions, sometimes I have a insignificant Hansen J statistic with insignificant Endogeneity test statistic and other times the opposite. As per my understanding, an insignificant Endogeneity test statistic would mean one of my instrument is exogenous but I'm confused how the joint test statistic (Hansen J) shows valid instruments.

Should I drop all the channels that have contradictory statistics or give preference to the validity of instruments over endogeneity test. Please note , I ran correlations before using the instruments, the instruments are not correlated with the dependent variable and are correlated with the endogenous variable . Also , the first stage R-squared is in the range of 16-21% depending on the set of instruments used . I also tried my model with only one instrument but ivreg2 does not have an option to check validity with one instrument. I have been looking for references that can guide me on this but a solution for this situation is not discussed other than looking for other set of instruments .

I would highly appreciate any support on this that will help me proceed with my analysis.

Thank you .

Regards,
Shabeen