Hot answers tagged paneldata
If there is autocorrelation than you need to add the lagged dependent variable. By not including it, your regression is suffering from the omitted variable bias. You say that by doing this you will be "modelling liquidity where liquidity of the previous day is the most important factor" but since your regression "demands" adding the LDV (due to the AC) then ...
Only top voted, non community-wiki answers of a minimum length are eligible