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asked 2014-04-14 13:39:38 +0000

silje gravatar image

Dear friends,

I want to estimate a model where I have a mean equation of:

Investment = α + βY +µR +ϴD+ ϵ

Where alpha is an intercept, Y is production, R is the interest rate and D is a dummy variable for risk?

I do not know if it is possible/allowed to model the volatility of investment in this way?

And I do not know what my variance equation will be. Is it just:

Vt= α + Rt-1(squared)

Where Rt-1(squared) is my residuals from the mean equation in t-1 squared?

I will be very greatful for all insight:)

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answered 2014-12-30 10:20:13 +0000

Pantera gravatar image

Hi! I don't know what you mean by using a dummy variable for risk. If you plan to estimate an ARCH-model, you should start by analyzing whether the residual in the mean function has conditional heteroscedasticity. Square the residuals and use the sample auto and sample partial autocorrelationfunction for diagnostics.

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Asked: 2014-04-14 13:39:38 +0000

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Last updated: Dec 30 '14