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Detecting Multiple Breaks in Financial Market Volatility Dynamics

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  • Elena Andreou
  • Eric Ghysels

Abstract

The paper evaluates the performance of several recently proposed tests for structural breaks in conditional variance dynamics of asset returns. The tests apply to the class of ARCH and SV type processes as well as data-driven volatility estimators using high-frequency data. In addition to testing for the presence of breaks, the statistics identify the number and location of multiple breaks. We study the size and power of the new test for detecting breaks in the second conditional variance under various realistic univariate heteroskedastic models, change-point hypotheses and sampling schemes. The paper concludes with an empirical analysis using data from the stock and FX markets for which we find multiple breaks associated with the Asian and Russian financial crises. These events resulted in changes in the dynamics of volatility of asset returns in the samples prior and post the breaks.

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0202.pdf
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Bibliographic Info

Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 0202.

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Length: 40 pages
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:ucy:cypeua:0202

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Web page: http://www.econ.ucy.ac.cy

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Keywords: change-point; break dates; ARCH; high-frequency data.;

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References

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