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Was there ever a shift: Empirical analysis of structural-shift tests for return volatility

Author

Listed:
  • Kostyrka, Andreï

    (University of Luxembourg, Luxembourg)

  • Malakhov, Dmitry

    (National Research University Higher School of Economics, Moscow, Russian Federation)

Abstract

In this article, two popular tests for structural breaks are considered for return volatilities: the ICSS algorithm employing the AIT test, and the least-squares (LS) estimator. We show that the AIT test is sensitive to many features of the time series, and the use of asymptotic critical values is not always justified. The LS method was found to detect breaks more accurately, especially if there are many, in comparative simulations. Real data analysis revealed that LS estimation yields results in better accordance with general economic intuition, although its results are somewhat sensitive to the sample length. In general, we recommend the LS estimator for practical purposes.

Suggested Citation

  • Kostyrka, Andreï & Malakhov, Dmitry, 2021. "Was there ever a shift: Empirical analysis of structural-shift tests for return volatility," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 61, pages 110-139.
    • Handle: RePEc:ris:apltrx:0416
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    References listed on IDEAS

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    More about this item

    Keywords

    structural breaks; volatility; GARCH;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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