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Detecting Level Shifts In The Presence Of Conditional Heteroscedasticity

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Author Info
M. Angeles Carnero ()
Daniel Peña ()
Esther Ruiz ()

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Abstract

The objective of this paper is to analyze the finite sample performance of two variants of the likelihood ratio test for detecting a level shift in uncorrelated conditionally heteroscedastic time series. We show that the behavior of the likelihood ratio test is not appropriate in this context whereas if the test statistic is appropriately standardized, it works better. We also compare two alternative procedures for testing for several level shifts. The results are illustrated by analyzing daily returns of exchange rates.

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Paper provided by Universidad Carlos III, Departamento de Estadística y Econometría in its series Statistics and Econometrics Working Papers with number ws036313.

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Date of creation: Nov 2003
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Handle: RePEc:cte:wsrepe:ws036313

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  1. Pena D. & Rodriguez J., 2002. "A Powerful Portmanteau Test of Lack of Fit for Time Series," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 601-610, June. [Downloadable!] (restricted)
  2. Altissimo, F. & Corradi, V., 2000. "Strong Rules for Detecting the Number of Breaks in a Time Series," Discussion Papers 00/11, University of Exeter, School of Business and Economics.
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  3. Kramer, Walter & Ploberger, Werner & Alt, Raimund, 1988. "Testing for Structural Change in Dynamic Models," Econometrica, Econometric Society, vol. 56(6), pages 1355-69, November. [Downloadable!] (restricted)
  4. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  5. Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  6. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December. [Downloadable!] (restricted)
  7. Balke, Nathan S, 1993. "Detecting Level Shifts in Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 81-92, January.
  8. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  1. Pedro Galeano, 2004. "Use Of Cumulative Sums For Detection Of Changepoints In The Rate Parameter Of A Poisson Process," Statistics and Econometrics Working Papers ws046816, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
  2. Pedro Galeano & Daniel Peña & Ruey S. Tsay, 2004. "Outlier Detection In Multivariate Time Series Via Projection Pursuit," Statistics and Econometrics Working Papers ws044211, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
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