Conditional Beta

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Sima77
Posts: 23
Joined: Sat May 01, 2021 10:07 am

Conditional Beta

Postby Sima77 » Fri May 13, 2022 6:03 pm

Please that might sound basic for all of you but I am not an expert and I need to estimate the following model using OLS:
R= a + β1 RM + β2 (z)RM + ε (the model called conditional CAPM).
Both β1 and β2 are the coefficients of RM, but β1 is unconditioned, and β2 is conditioned to the information in the vector (z)
The problem I am facing is how to put the (z) term in the equation on Eviews to get the conditional β2. I appreciate any suggestion.

startz
Non-normality and collinearity are NOT problems!
Posts: 3775
Joined: Wed Sep 17, 2008 2:25 pm

Re: Conditional Beta

Postby startz » Sat May 14, 2022 8:07 am

Is

Code: Select all

ls R c RM Z*RM


what you want?

Sima77
Posts: 23
Joined: Sat May 01, 2021 10:07 am

Re: Conditional Beta

Postby Sima77 » Sat May 14, 2022 1:54 pm

Thank you so much. Putting the multiplication sign between the (z) and RM makes the coefficient of RM conditional to (z)?

startz
Non-normality and collinearity are NOT problems!
Posts: 3775
Joined: Wed Sep 17, 2008 2:25 pm

Re: Conditional Beta

Postby startz » Sat May 14, 2022 2:20 pm

Right, the coefficient will be beta1 + beta2*z

Sima77
Posts: 23
Joined: Sat May 01, 2021 10:07 am

Re: Conditional Beta

Postby Sima77 » Sat May 14, 2022 3:39 pm

Amazing, thank you so much.


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