MATLAB: Garch with dumthe in mean equation

dummygarch

Hi, I would like to estimate this regression y=aD1 +aD2 + BD1Ret + BD2Ret +e. D1 is a dummy that is 1 whrn the return is positive, whereas D2 is 1 when it is negative and zero when is positive. I want to use a garch model. Is it correct to put in the garch specification 'C' NaN and to put in the matrix with the dependent variable D1 and D2, i this way it should ignore C and the intercept would become the coefficients of D1 and D2.
I know that i could set the equation as y=a +aD2 + BRet + BD2Ret +e. but I prefer have the two different coefficient and tyhen compute the difference. Thanks in advance Gaia

Best Answer

I don't know the specific answer to your question, but I use a general approach that might be useful to you: Generate data that you know should be perfectly fitted by the model you propose, then see if the technique you want to use gives the correct result.
Related Question