thank you for your reply. can you please elaborate a bit more on the
additive method to use for actual retruns. i've generated the required
dummy
variables. and i've regressed my return series on the 11 dummy
variables.
how do i proceed from here? where do i add teh original mean (because
as it
is i'm using the original series in the regression). any help would be
appreciated. also, is there any test for significance that can be done
to
test the seasonality? a chi square test of some sort?
thanks
>From: Kit Baum <[email protected]>
>Reply-To: [email protected]
>To: [email protected]
>Subject: st: Re: seasonality
>Date: Sat, 2 Apr 2005 09:14:14 -0500
>
>The textbook treatment of seasonality in economic and financial time
series
>involves creating a set of seasonal dummies (you need 3 for Q, 11 for
M)
>and then regressing your series on that set of dummies. Add the
original
>mean back into the series and you have a deseasonalized series of stock
>returns.
>
I suggest you consult any econometrics textbook that discusses seasonal
dummies. The residuals from the regression of y on a set of dummies and
a constant term are deseasonalized y. You could also extract a trend at
the same time by including a trend in the original regression. The
residuals in either case will have mean zero, so if you want them to be
in the same ball park as the seasonal series, add the mean of the
original series back to them.
The regression has an ANOVA F statistic with the usual connotation. If
you also include a trend, then consult the t-stat on the trend, and the
F-stat for excluding the set of dummies.
