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
Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)
Re: Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)
Yes. It sounds like you need the shift dummy both in the variance and the mean.
Re: Dummy variable for GJR Garch (1,1) and GARCH-M (1,1)
So for both Models, I put the dummy variable in the mean and the variance equation