I am very new to using stata and very new to using Garch models. I am currently doing my final dissertation for my MSc in Finance studies and regarding my topic I understood that i had to use garch to find answers to my questions.
So, I am trying to find if natural disaster events have any effect on a daily data of composite index (time series variable). I have my two data sets. one of the composite index and I have created a few dummy variables, each one for the date that every event took place (within my time range). Moreover, I want to include one control variable that affects the dependent variable (composite index) and I want to include it to remove any noise on my examination.
So, my questions are: 1) how to include these variables, meaning where should i put the control variables and where my independents ( I am using the menu of ARCH/GARCH testing, I'm not writing code)
2) I would like to examine the persistence of each event (each dummy variable) on my dependent variable. meaning that I want to check if the shock is still affecting the dependent variable up to 5 days after of its occurrence. how can I do that? give my dummy variable the value of 1 not only on the day of the occurrence of the event but on the 5 following days as well?
3) finally, do you think that it is correct to create one dummy variable for each catastrophic event or one dummy variable for each type of shock (i.e. 1 for floods, 1 for storms, 1 for earthquakes etc..)
Thanks a lot in advance, Evangelos
EDIT: my work is based on this paper. (Lin Wang 2013 - The Impact of Japanese Natural Disasters on Stock Market) http://artsci.wustl.edu/~gradconf/LinWang.pdf