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I have total 19 banks with five years data, comprising 95 observations total. I have 5 independent variables and 1 dependent variable. Can i apply multiple regression analysis by taking all five years data at once or I have to apply multiple regression for each year separately?

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  • $\begingroup$ I would think you would find trends in the data related to time given that you have multiple years worth of observations, and that these trends relate to other patterns you might detect. But, without knowing more about your data (see this post for more info) I can only offer general comments. $\endgroup$
    – learner
    Commented Feb 15, 2013 at 14:08

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You can pool different years if you assume that there are not unobserved variables which are correlated with the independent variables (if there are unobserved time-invariant variables you can do fixed-effects estimation or first-differencing).

$E(x_{it}^Tu_{it})=0$, $\quad t=1,\dots,5$ (contemporaneous exogeneity)

But you should add dummies for each year to capture general trends (as learner mentioned), and you should adjust the standard errors for serial correlation because in many cases there is a positive correlation between the residuals of a bank $i$ in year $t$ and in year $t+1$

$E(u_{it}u_{is}|x_{i})\neq0$, $\quad t\neq s$

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  • $\begingroup$ How i come to know whether there is unobserved variables in my panel data or not? $\endgroup$
    – Kamran
    Commented Feb 16, 2013 at 17:21
  • $\begingroup$ You cannot answer this question purely empirically, this depends on your research question, on the topic of interest and on the underlying theory. The assumption that there are no unobserved variables is often the most controversial issue in empirical analyses. And there are different techniques available which deal with unobserved variables but these require further assumptions. $\endgroup$ Commented Feb 16, 2013 at 20:07

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