A Stein-like estimator for linear panel data models

•A Stein-like estimator for linear panel data models is proposed in this paper, asymptotics for this Stein-like estimator is also established.•We show the asymptotic risk of the Stein-like estimator is strictly smaller than the fixed effects estimator within a local asymptotic framework.•Monte Carlo simulations confirm the theoretical findings in the paper.

In this paper we follow Hansen (2015a) and propose a Stein-like estimator for linear panel data models. Our estimator takes a weighted average of the fixed effects estimator and the random effects estimator using the weights constructed from Hausman's (1978) testing statistic. We establish the asymptotic distribution of the Stein-like estimator and show its asymptotic risk being strictly smaller than the fixed effects estimator within a local asymptotic framework.