I need to do an OLS regression on a dataset with stock index returns. To control for the Monday- and Holiday effect I need to add dummy variables. An other study that did the same regression described this as follows:
"𝐷𝑡={𝐷1𝑡,𝐷2𝑡,𝐷3𝑡,𝐷4𝑡}t,Dt={D1t,D2t,D3t,D4t} are dummy variables for Monday through Thursday, and 𝑄𝑡={𝑄1𝑡,𝑄2𝑡,𝑄3𝑡,𝑄4𝑡,𝑄5𝑡}Qt={Q1t,Q2t,Q3t,Q4t,Q5t} are dummy variables for days for which the previous 1 through 5 days are non‐weekend holidays."
Let's consider that there is no trading on Tuesday May 1, because of a non-weekend holiday, how do I correctly use the dummies? Which dummy from Q1t through Q5t has to be used for Wednesday May 2 or are there also dummies needed for Thursday May 3 and Friday May 4? Do I only need one dummy for Wednesday or do I need to add more than one dummy for the next days after Tuesday May 1?
I am new with this kind of regressions, so I do not know how to use this.
Can somebody maybe help me? Thanks in advance.
From what I understand, you are interested in the stock index on a daily basis (or even more fine-grained) and you should thus assign dummy values for both variables and for every date.
I think for your case of Wednesday May 2, D3t should read 1 and all other Dts should read 0. Q1t should read 1 and all other Qts should read 0.
I think it is of upmost importance that for each variable you can only assign one predictor with one.
First, thank you for your answer!
I find it difficult to clearly explain my question, but yes I am interested in the stock return on daily basis. Furthermore, I am very interested in your answer, because I find this very difficult.
I think I understand your answer, but I have a question about it.
You say that on Wednesday May 2 (the first day after a non-weekend holiday, let's say Labour Day), Qt1 should read 1. That makes sense to me, but when do Q2t, Qt3, Qt4 and Qt5 occur if a Wednesday reads Q1t?
With the answer you give, my thought is that every first trading day after a non-weekend holiday should read 1 with Qt1, and that the other Qt's make no sense. But when do the other Qt's read 1 then?
I hope you understand my question, if you don't please say it. I will try to explain it in an other way.
Best regards,
Jesper.
I maybe understand your answer, but I think I understand it better with another example.
When there's a holiday, let's say Labour Day (1 May), that falls on a sunday. Does the next monday read 1 with D1t and Q1t?
So even when a holiday (Labour Day) falls on a sunday, the variable Q1t reads 1?
First of all, I am not sure whether days after non-weekend holidays are counted even after a holiday or not. Consider for example a holiday on a friday.
Concernimg your other questions:
"You say that on Wednesday May 2 (the first day after a non-weekend holiday, let's say Labour Day), Qt1 should read 1. That makes sense to me, but when do Q2t, Qt3, Qt4 and Qt5 occur if a Wednesday reads Q1t?" It might be that there are no occasions where these combinations occur. These predictors might thus not be entirely independent. However, when you consider the possibilities of counting post-weekend days it might be possible.
"When there's a holiday, let's say Labour Day (1 May), that falls on a sunday. Does the next monday read 1 with D1t and Q1t?
So even when a holiday (Labour Day) falls on a sunday, the variable Q1t reads 1?"
No I dont think so, I think in this case all Qt variables should read 0.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
O
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used.
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used
A dummy variable should be to control for any qualitative difference. If the stock market is closed for the weekend, a dummy variable indicating that would be sufficient. If there are qualitative differences between different weekends, or between a holiday and a weekend, two dummy variables may be used
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