Regression Models with Data-based Indicator Variables

OLS estimation of an impulse-indicator coefficient is inconsistent, but its variance can be consistently estimated. Although the ratio of the inconsistent estimator to its standard error has a tdistribution, that test is inconsistent: one solution is to form an index of indicators. We provide Monte Carlo evidence that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework. Although White’s (1980) heteroskedasticity test is incorrectly sized in that context, we suggest an improvement. Finally, a possible modification to impulse ‘intercept corrections’ is considered.

Regression Models with Data-based Indicator Variables

OLS estimation of an impulse-indicator coefficient is inconsistent, but its variance can be consistently estimated. Although the ratio of the inconsistent estimator to its standard error has a t-distribution, that test is inconsistent: one solution is to form an index of indicators. We provide Monte Carlo evidence that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework. Although White's (1980) heteroskedasticity test is incorrectly sized in that context, we suggest an improvement. Finally, a possible modification to impulse intercept corrections is considered.

The Informativeness of Quarterly Financial Reporting: The Portuguese Case

With the Directive 2004/109/EC, of December 15, 2004 – Transparency Directive –, the European Union decided not to require listed companies to disclose financial information in the first and third quarters of each year. Each EU country now has to decide whether to oblige its companies to disclose this information. Using a sample of 1751 firm-earnings announcements between 1994 and 2004, this paper ascertains the informativeness of quarterly financial reporting in Portugal, one of the seven European countries where the disclosure of such information is currently compulsory in all quarters. Evidence suggests that the information of the first and third quarters, both in terms of price volatility and trading volume, is significant and not inferior to that of the remaining earnings announcements.Capital markets-based research; interim accounting disclosure; market reaction; market regulation

Selecting a Regression Saturated by Indicators

We consider selecting a regression model, using a variant of Gets, when there are more variables than observations, in the special case that the variables are impulse dummies (indicators) for every observation. We show that the setting is unproblematic if tackled appropriately, and obtain the finite-sample distribution of estimators of the mean and variance in a simple location-scale model under the null that no impulses matter. A Monte Carlo simulation confirms the null distribution, and shows power against an alternative of interest.indicators; regression saturation; subset selection; model selection