How do I create dummy variables for this task?
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I am wondering whether the stock return of Colgate-Palmolive is different for a specific day of the week. Hence, you define the following dummy variables, one for each day of the week:
?1 iftisaMonday DMon,t = 0 iftisnotaMonday
.
DFri,t = 0 iftisnotaFriday
For instance, the Monday dummy variable at day t will be equal to one (DMon,t = 1) if and only if t is a Monday. If this is not the case, the dummy variable will be equal to zero (DMon,t = 0).
Use the five Fama-French factors at time t as well as the five dummy variables at time t as independent variables and the excess return of Colgate-Palmolive at time t as the dependent variable, i.e., run the following regression without a constant:
Re = βRe +βSMB+βHML+βRMW+βCMA+βD
CP,t 2 M,t 3 t 4 t 5 t 6 t 7 Mon,t
+ β8 DTue,t + β9 DWed,t + β10 DThu,t + β11 DFri,t + uCP,t,
so that the dummy variables altogether capture the missing constant. Summarize the pa- rameter estimates, their t-statistics, and the adjusted R2 in a table in your solution paper. Based on these results, can you provide an economic interpretation for the coefficients of the dummy variables that are statistically significantly different from zero?
2 comentarios
Walter Roberson
el 29 de Oct. de 2019
Edvard, if you find the question unclear, then as you are the author, you should add clarity.
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the cyclist
el 28 de Oct. de 2019
If you have access to the Statistics and Machine Learning Toolbox, then the dummyvar command could be helpful for you.
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