2 You believe that the VIX trades in regimes where its average level is significantly different You define four regimes from 2004 through 2021 June 2008 through October 2011 (financial crisis) February 2020 through March 2021 (the COVID 19 crisis) the 12 month transition periods before and after the financial crisis and the current transition period after 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 2021 (214 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 COVID 19 crisis 1 if between Feb 2020 through March 2021, 0 if not Dummy variable X2 Transition period 1 if in 12 months before or after the financial crisis or the current period since the COVID 19 crisis (June 2007 May 2008, Nov 2011 Oct 2012, or April 2021 Oct 2021) The results for the regression are as follows Coefficients Standard Error Intercept 14 63 0 5226 financial crisis 13 71 1 0610 COVID 19 crisis 15 71 1 6643 transition 5 40 1 1835 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 Which of the coefficients are significant at the 0 01 level According to the regression result, what was the average value of the VIX during the COVID 19 Crisis 3 (10 points) In estimating the regression in the previous problem ( 2), you are concerned that the t statistics may be inflated because of serial correlation You compute the DW statistic at 0 724 for the regression Based on the DW, what can you say about serial correlation between the residuals Are they positively or negatively correlated Or not correlated Compute the sample correlation between the regression residuals from one period and those from the previous period Perform a statistical test at the 05 level to see if there is serial correlation If you are using the table in the textbook, assume that the critical values of the DW statistic for 214 observations are about 0 11 higher than the critical values for 100 observations Can you do number 3 please

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 20, 2024

2. You believe that the VIX trades in regimes where its average level is significantly different. You define four regimes from 2004 through 2021: June

2. You believe that the VIX trades in regimes where its average level is significantly different. You define four regimes from 2004 through 2021: June 2008 through October 2011 (financial crisis); February 2020 through March 2021 (the COVID-19 crisis); the 12-month transition periods before and after the financial crisis and the current transition period after 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 2021 (214 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: COVID-19 crisis: 1 if between Feb 2020 through March 2021, 0 if not Dummy variable X2: Transition period: 1 if in 12 months before or after the financial crisis or the current period since the COVID-19 crisis (June 2007 May 2008, Nov 2011 Oct 2012, or April 2021 Oct 2021) The results for the regression are as follows

	Coefficients	Standard Error
Intercept	14.63	0.5226
financial crisis	13.71	1.0610
COVID-19 crisis	15.71	1.6643
transition	5.40	1.1835

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?
Which of the coefficients are significant at the 0.01 level?
According to the regression result, what was the average value of the VIX during the COVID-19 Crisis?

3. (10 points) In estimating the regression in the previous problem (#2), you are concerned that the t-statistics may be inflated because of serial correlation. You compute the DW statistic at 0.724 for the regression

Based on the DW, what can you say about serial correlation between the residuals? Are they positively or negatively correlated? Or not correlated?
Compute the sample correlation between the regression residuals from one period and those from the previous period.
Perform a statistical test at the = .05 level to see if there is serial correlation. If you are using the table in the textbook, assume that the critical values of the DW statistic for 214 observations are about 0.11 higher than the critical values for 100 observations.

Can you do number 3 please!