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Monitoring Constancy Of Variance In Conditionally Heteroskedastic Time Series

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  • Horv th, Lajos
  • Kokoszka, Piotr
  • Zhang, Aonan
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    Abstract

    We propose several methods of on-line detection of a change in unconditional variance in a conditionally heteroskedastic time series. We follow the paradigm of Chu, Stinchcombe, and White (1996, Econometrica 64, 1045 1065) in which the first m observations are assumed to follow a stationary process and the monitoring scheme has asymptotically controlled probability of falsely rejecting the null hypothesis of no change. Our theory is applicable to broad classes of GARCH-type time series and relies on a strong invariance principle that holds for the squares of observations generated by such models. Practical implementation of the procedures, which uses a bandwidth selection procedure of Andrews (1991, Econometrica 59, 817 858), is proposed, and the performance of the methods is investigated by a simulation study.This research was partially supported by NSF grants INT-0223262 and DMS-0413653 and NATO grant PST.EAP.CLG 980599.

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    Bibliographic Info

    Article provided by Cambridge University Press in its journal Econometric Theory.

    Volume (Year): 22 (2006)
    Issue (Month): 03 (June)
    Pages: 373-402

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    Handle: RePEc:cup:etheor:v:22:y:2006:i:03:p:373-402_06

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    Cited by:
    1. Elena Andreou & Eric Ghysels, 2007. "Quality Control for Structural Credit Risk Models," University of Cyprus Working Papers in Economics 3-2007, University of Cyprus Department of Economics.
    2. Marcelo Brutti Righi & Paulo Sergio Ceretta, 2011. "Analyzing the structural behavior of volatility in the Major European Markets during the Greek crisis," Economics Bulletin, AccessEcon, vol. 31(4), pages 3016-3029.
    3. Luis A. Gil-Alana & Goodness C. Aye & Rangan Gupta, 2012. "Testing for Persistence with Breaks and Outliers in South African House Prices," Faculty Working Papers 20/12, School of Economics and Business Administration, University of Navarra.
    4. Xu, Ke-Li, 2013. "Powerful tests for structural changes in volatility," Journal of Econometrics, Elsevier, vol. 173(1), pages 126-142.
    5. Hsu, Chih-Chiang, 2007. "The MOSUM of squares test for monitoring variance changes," Finance Research Letters, Elsevier, vol. 4(4), pages 254-260, December.
    6. Cavaliere, Giuseppe & Taylor, A.M. Robert, 2008. "Testing for a change in persistence in the presence of non-stationary volatility," Journal of Econometrics, Elsevier, vol. 147(1), pages 84-98, November.
    7. Chen, Zhanshou & Tian, Zheng, 2010. "Modified procedures for change point monitoring in linear models," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(1), pages 62-75.

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