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pre, during and post financial crisis analysis

  1. #1
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    pre, during and post financial crisis analysis

    I am a little bit stuck with my analysis regarding: the effect of liquidity on performance of carry trading during the recent financial crisis. Carry trading is an FOREX trading whereby someone borrows in a country with low interest rate and invest this money in a high interest rate country, gaining the interest rate difference for a certain time t.

    My variables: I have 3 variables that measure liquidity let’s call them variable A,B and C (these are the independent variables). And off course I have the dependent variable called R (return/performance of the carry trade). All are measured in percentages.

    My time series data: I have monthly data from 2002 till 2011. Let’s assume the crisis took place during 2008.

    What I know and did: 1st regression: I want to know what the overall effect was of liquidity on the carry trade performance (variable R) during the entire sample period. This regression is just a basic multiple regression.

    What I want to know: I want to know per variable (a, b and c) how it affected the performance (variable R) before, during and after the financial crisis, . So I need to make a dummy for these time period crisis. But these dummies (in my opinion, correct me if I am wrong) will indeed look at the needed time periods, but take all the variables in once shot. As said for each variable I want to compare its effect during the crisis and non-crisis period (before and after)

    Attached is an example of my dataset in excel format. For simplicity I have assumed the following periods: 2007 is before crisis, 2008 is crisis and 2009 is after crisis.

    How should I do this? Do I run several regressions? I am just not able to figure it out. So I ask the humble people of this forum for help.

    Thanks,

    Krishan
    Attached Files Attached Files

  2. #2
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    Re: pre, during and post financial crisis analysis

    Not entirely sure if I have understood your requirements totally, but heres a stab at it...

    Looks like you have defined 2007 and before - Pre Crisis, 2008 - Crisis and 2009 and after - Post Crisis and you want to see what effect the crisis had on returns for each period. If that is the case then simply working out the average monthly returns for each period would work (however would be quite unfair due to the difference in length of each time period). Alternatively perhaps 12 month rolling average returns may give you some information...see the attachedForum%20data(1).xlsx

    Hope it helps

  3. #3
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    Re: pre, during and post financial crisis analysis

    Thanks alot for yout fast reply. A friend of mine suggested doing the regression in spss using select cases or split file. That should do the trick.
    But I guess what you said also makes sense. Anyway I will check both methods.

    Thanks,

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