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Das Halteproblem bei Strukturbrüchen in Finanzmarktzeitreihen
[The Halting Problem applied to Structural Breaks in Financial Time Series]

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  • Czinkota, Thomas
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    Abstract

    In financial time series analysis structural breaks indicate a fundamental change in market processes. Therefore, those breaks are of great interest for portfolio managers. Knowledge about a structural break could help managers in the orientation of their portfolio. The classical methods of testing for structural breaks are used mostly to prove mathematically what the field-researcher already expects. Usually, successful applications consist of retrospective identification of a structural break which does correspond to a well known incident. In the field of portfolio management the situation is not as clearly structured. Typically there is no single explicit incident that has to be verified. The market delivers numerous incidents every day. By using the classical methods of analysis, many structural breaks are identified. Yet, it is essential to realize, that the identification of a structural break is entirely dependent on the method used. Using methods of proof from theoretical computer science this article advocates the need to resolve contradictions between different methods of analysis. Right now, the portfolio manager does not know whether or not the driving processes in the market have changed, even if his preferred method does indicate a structural break. Therefore, current tests for structural breaks lack in decision value for portfolio managers. Whenever such situation occurs in empirical studies, there is not a problem of method, but rather the failure of an approach. The implication for research is that the classical methods of testing for structural breaks used in the field of portfolio management need not to be mathematically refined. Rather, they need to be augmented and restructured to reflect the context of the field.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37072.

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    Date of creation: 2012
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    Handle: RePEc:pra:mprapa:37072

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    Keywords: Halting Problem; Structural Breaks; Financial Time Series; Portfolio Management;

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