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Regime shift model by three types of distribution considering a heavy tail and dependence

Author

Listed:
  • Jungwoo kim

    (Yonsei University)

  • Joocheol kim

    (Yonsei University)

Abstract

I adopt a regime shift model to investigate a shift of distribution of each regime during a time series data. Unlike previous studies, I applied three types of distribution to use a regime shift model, i.e., normal, GEV and stable distribution, which allows me to consider a heavy tail regime in the model. From some theoretical basis and empirical results, I find that the regime shift model in stable distribution is best appropriate. I also find that tail index of the innovation and dependence measure move together, implying dependence among a consecutive data may lead extreme event and vice versa.

Suggested Citation

  • Jungwoo kim & Joocheol kim, 2015. "Regime shift model by three types of distribution considering a heavy tail and dependence," Working papers 2015rwp-86, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2015rwp-86
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    Keywords

    regime shift model; tail index; dependence measure; extreme event;
    All these keywords.

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