Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)

Discussions of ARCH, GARCH, and related models
GaryM26
Posts: 15
Joined: Mon Jul 23, 2012 5:08 am

Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)

Unread post by GaryM26 »

I am trying to construct a dummy variable in both a AR(1) GJR and AR (1) Garch-m to measure the impact of a short selling ban on the leverage effect and risk.
I.m not sure where to place the dummy variable to measure the impact correctly.

Would I place the dummy in the variance equation for the GJR to measure the leverage impact and for the Garch-m place the dummy in the mean equitation.
Any advice or suggestions would be greatly appreciated.

Thanks
TomDoan
Posts: 7814
Joined: Wed Nov 01, 2006 4:36 pm

Re: Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)

Unread post by TomDoan »

Yes. It sounds like you need the shift dummy both in the variance and the mean.
GaryM26
Posts: 15
Joined: Mon Jul 23, 2012 5:08 am

Re: Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)

Unread post by GaryM26 »

So for both Models, I put the dummy variable in the mean and the variance equation
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