Dummy Variables in Stepwise Regression

This note discusses a problem that might occur when forward stepwise regression is used for variable selection and among the candidate variables is a categorical variable with more than two categories.Most software packages (such as SAS, SPSSx, BMDP) include special programs for performing stepwise regression.The user of these programs has to code categorical variables with dummy variables.In this case the forward selection might wrongly indicate that a categorical variable with more than two categories is nonsignificant.This is a disadvantage of the forward selection compared with the backward elimination method.A way to avoid the problem would be to test in a single step all dummy variables corresponding to the same categorical variable rather than one dummy variable at a time, such as in the analysis of covariance.This option, however, is not available in forward stepwise procedures, except for stepwise logistic regression in BMDP.A practical possibility is to repeat the forward stepwise regression and change the reference categories each time.