1.You believe that the VIX trades in regimes where its average level is significantly different.You define four regimes from 2004 through 2020: June 2008 through October 2011 (financial crisis); the 12-month transition periods before and after the financial crisis; February 2020 through October 2020 (the COVID-19 crisis); and the remaining periods of low volatility.In order to test your hypothesis, you examine month-end values of the VIX from January 2004 through October 2020 (202 observations) and conduct the following regression:

Dependent variable Y:Month-end value of VIX

Dummy variable X1: Financial Crisis:1 if between June 2008 through Oct 2011, 0 if not

Dummy variable X2:Transition period: 1 if in 12 months before or after the financial crisis(June 2007 - May 2008, or Nov 2011 - Oct 2012)

Dummy variable X3:COVID-19 crisis:1 if between Feb 2020 through Oct 2020, 0 if not

The results for the regression are as follows

Coefficients

Standard Error

Intercept

14.63

0.5214

financial crisis

13.71

1.0585

transition

6.02

1.3120

COVID-19 crisis

18.82

2.0341

a.How would the introduction of Dummy variable X4: Low volatility period (Jan 2004 - May 2007, or Nov 2012 - Jan 2020) affect the output of this regression?Why?

b.Which of the coefficients are significant at the 0.01 level?

c.According to the regression result, what was the average value of the VIX during the Financial Crisis?