eventstudies (version 1.2.2)

makeX: Prepare regressors for computation of Augmented Market Models

Description

‘makeX’ is used to prepare regressors for computation of Augmented Market Models. It can be used to create a matrix of explanatory variables in the form specified by the user for estimation of AMM.

Usage

makeX(market.returns,
      others,
      switch.to.innov = rep(TRUE, NCOL(others)),
      market.returns.purge = TRUE,
      nlags = 5,
      dates = NULL,
      verbose = FALSE)

Arguments

market.returns

a univariate timeseries object of ‘class’ zoo. In market models, this is normally the returns of a stock market index.

others

a zoo matrix of other regressors for the multiple regression model.

switch.to.innov

a ‘logical’ vector with an element for each column in “others” specifying whether to switch the column from raw values to auto-regressive residuals. Default is ‘TRUE’ for all the columns. See ‘Details’.

market.returns.purge

a ‘logical’ indicating whether to purge the effects of “others” from “market.returns”. See ‘Details’.

nlags

a integer specifying the number of lags required when ‘market.returns.purge’ is ‘TRUE’.

dates

a ‘Date’ vector, default set to ‘NULL’, specifying breaks. See ‘Details’.

verbose

a ‘logical’ value, with the default being ‘FALSE’, specifying whether detailed output is required.

Value

a time-series object of regressors is returned.

Warning

The input data should not contain ‘NA’s, as is required by the “lm” function to estimate a linear regression. Please use ‘na.omit’ before feeding data into this function.

Details

This function prepares the regressors of interest for the purpose of running aumgmented market models.

The ‘logical’ vector ‘switch.to.innov’ is applicable only to the regressors in ‘others’ matrix and not to the time series vector in ‘market.returns’.

When ‘market.returns.purge’ is ‘TRUE’, residuals from a regression of ‘market.returns’ on ‘others’ is obtained. If ‘dates’ are provided, this regression is done within sub-periods as identified by the ‘dates’ vector. When ‘dates’ is set to default value of ‘NULL’, the start and end points of ‘market.returns’ is taken as the period for estimation.

Examples

# NOT RUN {
data("OtherReturns")
market.returns <- OtherReturns$NiftyIndex
currency.returns <- OtherReturns$USDINR

X <- makeX(market.returns,
           others = currency.returns,
           switch.to.innov = FALSE,
           market.returns.purge = FALSE,
           verbose = FALSE)
head(na.omit(X))
# }