Fama Macbeth Regression and Dummy Variable

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Fama Macbeth Regression and Dummy Variable

Postby Mac_HAM » Mon Oct 16, 2017 3:59 pm

I am reading a paper entitled "investor sentiment and the max effect" by Fong and Toh (2014) published in Journal of Banking and Finance. The authors used Fama Macbeth regression (page 198-199, Table 10 of their paper) and it seems they used sentiment as a dummy variable, BW sentiment index equal to one if above median value otherwise zero.

My understanding of Fama Mcbeth regression is that the independent variables need to vary across stocks in each time period; whereas sentiment dummy remains the same for all the stocks in each time period.

Can anyone please help me on this issue that is it possible to include a dummy variable in Fama Macbeth regression where the dummy is equal to one or zero for all stocks at each time t?

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