EViews.com

Hi,

I am performing a GARCH with three dummy variables.
To avoid the variable trap, I entered just two dummy variables in the GARCH.
My problem is that I know that I have to read the coefficients as deviation from the coefficient of the constant(the dummy ommitted), but the result is not the same if I change the dummy variable to be omitted.
I know that I can solve the problem omitting the constant (typing lreturn lreturn(-1) d_d1 d_d2 d_d3) but i receive an error message.

Could you please help me? If I cannot interpret my coefficients I cannot conclude my work!

Thanks a lot,
Bea

Thi is the Eviews output:

Coefficient Std. Error z-Statistic Prob.

C 4.49E-05 7.67E-05 0.585207 0.5584
LRETURN(-1) 0.143200 0.017672 8.103173 0.0000

Variance Equation

C 1.89E-05 4.39E-07 43.07701 0.0000
RESID(-1)^2 0.230369 0.054338 4.239565 0.0000
GARCH(-1) 0.876040 0.012980 67.49164 0.0000
D_D2 -1.89E-05 4.72E-07 -40.02030 0.0000
D_D3 -1.70E-05 8.27E-07 -20.57619 0.0000

T-DIST. DOF 2.563125 0.164284 15.60182 0.0000

R-squared 0.028141 Mean dependent var 0.000247
Adjusted R-squared 0.025365 S.D. dependent var 0.007822
S.E. of regression 0.007722 Akaike info criterion -7.449121
Sum squared resid 0.146140 Schwarz criterion -7.430227
Log likelihood 9166.694 F-statistic 10.13863
Durbin-Watson stat 1.944860 Prob(F-statistic) 0.000000

The dummy coefficients tell you the difference from the left out group. If you have groups with effects a, b, and c and omit the first group, the constant will be a and the dummies will be b-a and c-a. If you omit the second group, the constant will be b and the dummies will be a-b and c-b.

Dear Startz,

thank you very much for your reply. However, I am still confused.

I'll try to explain better my problem.

I have three dummy variables: d_d2 d_d3 d_d4. When I estimate the GARCH I omit one of them.
Suppose that I omit the last one. I will have this output:

Coefficient Std. Error z-Statistic Prob.

C 4.49E-05 7.67E-05 0.585207 0.5584
LRETURN(-1) 0.143200 0.017672 8.103173 0.0000

Variance Equation

C 1.89E-05 4.39E-07 43.07701 0.0000
RESID(-1)^2 0.230369 0.054338 4.239565 0.0000
GARCH(-1) 0.876040 0.012980 67.49164 0.0000
D_D2 - 1.89E-05 4.72E-07 -40.02030 0.0000
D_D3 -1.70E-05 8.27E-07 -20.57619 0.0000

So, my coefficients should be:
d_d4= 1.89E-05
d_d2= (1.89E-05- 1.89E-05)
d_d3= (1.89E-05 -1.70E-05)

Suppose that, instead, I would like to omit dummy d2. I have the following output:

Coefficient Std. Error z-Statistic Prob.

C 4.94E-05 7.78E-05 0.635664 0.5250
LRETURN(-1) 0.144305 0.017676 8.163724 0.0000

Variance Equation

C 2.83E-08 7.94E-08 0.355703 0.7221
RESID(-1)^2 0.195123 0.044303 4.404251 0.0000
GARCH(-1) 0.883472 0.012709 69.51633 0.0000
D_D3 1.53E-06 5.85E-07 2.619131 0.0088
D_D4 1.46E-05 9.25E-06 1.573964 0.1155

So, my coefficients should be:
d_d2= 2.83E-08
d_d3= (2.83E-08 + 1.53E-06)
d_d4= (2.83E-08 + 1.46E-05)

But the results for the coefficients is different and this shoul not happen, since it is indifferent which dummy variable you decide to drop.
What I am doing wrong? :(

Thank you very much for any help!

Bea

Do you have 4 groups or 3? You generally need the same number of coefficients (intercept plus dummies) as groups.

I have three dummy variables and I decide to drop one of them each time, so I always have three groups (intercept + two dummy variables).

Why I have different results? It's very important for me because of course if I have different results I have also different conclusion!

Thanks
Bea

The number of dummies doesn't decide the number of groups, the data does.

Why are you using dummy variables? What are you expecting them to do?