Structural Change in Tail Behavior and the Asian Financial Crisis
AbstractThis paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill's conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The recursive test is shown to be inconsistent in one direction, and only a one-sided test is recommended. Specifically, the test can be used when the alternative hypothesis is that the tail index decreases over time. A rolling and sequential version of the test is consistent in both directions. The methods are illustrated on recent stock price data for Thailand, Malaysia and Indonesia. The period covers the recent Asian financial crisis and enables us to assess whether breakpoints in domestic asset return distributions are related to known changes in institutional arrangements in the foreign currency markets of these countries.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1283.
Length: 38 pages
Date of creation: Nov 2000
Date of revision:
Publication status: Published in Review of Economic Studies (2001), 68(3): 633-663
Note: CFP 1030.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-05-16 (All new papers)
- NEP-FMK-2001-05-16 (Financial Markets)
- NEP-IFN-2001-05-16 (International Finance)
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