Linear Regression - Clip: Level Dummies

4 important questions on Linear Regression - Clip: Level Dummies

Level of here, return could vary between the week

Rt=alpha1Dt^Mon+alpha2Dt^Tue etc.

Level dummies don't have  x-variables thus

Can interpret alpha's as the average return;
alpha1 is avg return on Monday
alpha4 is avg return on Wednesday

Later on we would like to test if avg return on mon is sig different from tues; test alpha1=alpha2 or go on and test all dummies alpha1=.....alpha5

If true, no need for dummies (otherwise at least 1 is sig different from others)
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Going back to salary example: suppose sample consists of males and females, Yi=B1*Mi+B2*Fi+e,i

Can also say that B1 is avg salary of a male etc but only if no x-variables are in the regression such as B3Age.

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