Hi everyone,
I was wondering if anyone would be able to help me with an issue I have come across on STATA. I have run an EGARCH model with the dependent variable being "stockreturns" and two independent binary variables called "pos" and "neg", one for good events and one for bad events that may affect stock returns. Given I have ran an EGARCH, I am having trouble interpreting the coefficients of pos and neg, as some articles detail that this is the impact on stock returns whereas others state that it is the dummy's impact on conditional variance of the stock return.
My current EGARCH general equation takes this form:
1. Is it correct to include the dummy's in this equation? Or must I create a return mean equation for the dummy's? Basically, what are the correct expressions for this model using explanatory variables?
2. How do I interpret the following dummy variables in this context (photo below) ? Is it the effect on conditional variance or is that not the case until the ARCH part? (that leads me to believe my expression is wrong)
I would really appreciate any help and I hope that makes sense! Feel free to ask any questions if it did not.
I was wondering if anyone would be able to help me with an issue I have come across on STATA. I have run an EGARCH model with the dependent variable being "stockreturns" and two independent binary variables called "pos" and "neg", one for good events and one for bad events that may affect stock returns. Given I have ran an EGARCH, I am having trouble interpreting the coefficients of pos and neg, as some articles detail that this is the impact on stock returns whereas others state that it is the dummy's impact on conditional variance of the stock return.
My current EGARCH general equation takes this form:
2. How do I interpret the following dummy variables in this context (photo below) ? Is it the effect on conditional variance or is that not the case until the ARCH part? (that leads me to believe my expression is wrong)
I would really appreciate any help and I hope that makes sense! Feel free to ask any questions if it did not.
Attached Files
