How do I create dummy variables for this task?

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Edvard Sandnes 2019-10-28

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https://ww2.mathworks.cn/matlabcentral/answers/487874-how-do-i-create-dummy-variables-for-this-task

评论： Rena Berman 2019-12-12

I am wondering whether the stock return of Colgate-Palmolive is different for a specific day of the week. Hence, you define the following dummy variables, one for each day of the week:

?1 iftisaMonday DMon,t = 0 iftisnotaMonday

.

DFri,t = 0 iftisnotaFriday

For instance, the Monday dummy variable at day t will be equal to one (DMon,t = 1) if and only if t is a Monday. If this is not the case, the dummy variable will be equal to zero (DMon,t = 0).

Use the five Fama-French factors at time t as well as the five dummy variables at time t as independent variables and the excess return of Colgate-Palmolive at time t as the dependent variable, i.e., run the following regression without a constant:

Re = βRe +βSMB+βHML+βRMW+βCMA+βD

CP,t 2 M,t 3 t 4 t 5 t 6 t 7 Mon,t

+ β8 DTue,t + β9 DWed,t + β10 DThu,t + β11 DFri,t + uCP,t,

so that the dummy variables altogether capture the missing constant. Summarize the pa- rameter estimates, their t-statistics, and the adjusted R2 in a table in your solution paper. Based on these results, can you provide an economic interpretation for the coefficients of the dummy variables that are statistically significantly different from zero?