0
$\begingroup$

From the Paper "momentum crashes", Daniel and Moskowitz

From the Paper "momentum crashes", Daniel and Moskowitz

$I_B$ is a dummy Variable which could be either one or zero

Is it possible to regress on two intercepts? or do i get something wrong ? Are there options to create my own linear regression model ?

Improve this question
$\endgroup$

1 Answer 1

Reset to default
0
$\begingroup$

What I would do: run the regression twice.

The first time use only the time periods with $I_{t-1} = 0$

The resulting Alpha and Beta will be estimates of $\alpha_0,\beta_0$

Now run the regression a second time, using the other data points, those with $I_{t-1} = 1$. The resulting Alpha and Beta are estimates of $\alpha_0+\alpha_B,\beta_0+\beta_B$. By subtracting the already known $\alpha_0,\beta_0$, you can find $\alpha_B,\beta_B$.

Improve this answer
$\endgroup$
2
  • $\begingroup$ Thank you very much! just one thought left: since it is called conditional CAPM, doesn't the compare group (you suggested as first regression: I = 0) hast to be the whole sample, so the unconditional fit (so alpha(0) contains all values, alpha(b) only I=1) $\endgroup$
    – KDMS
    Jun 23, 2019 at 12:27
  • $\begingroup$ nvm since checking with the solutions your attempt makes sense thanks! $\endgroup$
    – KDMS
    Jun 23, 2019 at 12:31

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.