Dear Stackexchange community,
I am running a panel data regression on 20 years of monthly historical excess returns of the stocks in the S&P 500 at 31/12/2017. I like to test the effectiveness of several factor models, however I am having difficulty interpreting the constant that Stata provides. If I recall correctly, when using a fixed effect model the equation when using one independent variable is as follows.
$$Y_{i,t}=βX_{i,t}+α_i+u_{i,t}$$
where $\alpha_i$ is an individual intercept per stock.
When I perform a fixed effect panel data regression of my dataset on the monthly excess market return provided by Kenneth French on his website, stata gives me a constant. How should I interpret that? My regression result was as follows:
My regression then would follow this equation right?:
$$r_{i,t}-r[\text{risk free}]_t= β(r[mkt]_t-r[\text{risk free}]_t)+α_i+u_{i,t}$$
my regression result is the following: panel data regression result (xtreg, fe)
as you can see, it includes a constant. How do I interpret this?
any help would be greatly appreciated! kind regards,
Marinus