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Structural Stability Tests with Unknown Breakpoint for the Efficient Method of Moments with Application to Stochastic Volatility Models

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  • Pieter J. van der Sluis

    (University of Amsterdam)

Abstract

Tests for structural stability with unknown breakpoint are derived for and applied tothe efficient method of moments. Three types of tests are discerned: Wald type tests,Predictive tests and Hansen type tests. The Hansen type test for structural stabilitywith unknown breakpoint is a novelty for moment based techniques. Therefore for thistest asymptotic and local power results are provided. It turns out this test has thesame asymptotic distribution as the Hall and Sen test. All these tests are applied toan asymmetric stochastic volatility model for a series of daily observations of theS&P 500 index over the years 1963-1993. Our results indicate that the asymmetricstochastic volatility models fails all stability tests. The supremum type tests givean estimate of the breakpoint in first half of 1970. However the model seems to becomemore stable as time proceeds.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 98-055/4.

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Date of creation: 20 May 1998
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Handle: RePEc:dgr:uvatin:19980055

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Web page: http://www.tinbergen.nl

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  11. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
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  18. Pieter J. van der Sluis, 1997. "Computationally Attractive Stability Tests for the Efficient Method of Moments," Tinbergen Institute Discussion Papers 97-087/4, Tinbergen Institute.
  19. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
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Cited by:
  1. Eric Ghysels & Alain Guay, 2001. "Testing for Structural Change in the Presence of Auxiliary Models," CIRANO Working Papers 2001s-54, CIRANO.

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