Stochastic Permanent Breaks
AbstractThis paper bridges the gap between processes where shocks are permanent and those with transitory shocks by formulating a process in which the long-run impact of each innovation is time-varying and stochastic. In the stochastic permanent breaks (STOPBREAK) process, frequent transitory shocks are supplemented by occasional permanent shifts. Consistency and asymptotic normality of quasi-maximum-likelihood estimates is established, and locally best hypothesis tests of the null of a random walk are developed. The model is applied to relative prices of pairs of stocks and significant test statistics result. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Bibliographic InfoArticle provided by MIT Press in its journal The Review of Economics and Statistics.
Volume (Year): 81 (1999)
Issue (Month): 4 (November)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Engle, Robert F & Smith, Aaron, 1998. "Stochastic Permanent Breaks," University of California at San Diego, Economics Working Paper Series qt99v0s0zx, Department of Economics, UC San Diego.
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