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A note on testing regime switching assumption based on recurrence times

  • Sen, Rituparna
  • Hsieh, Fushing
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    By perceiving a regime switching model as an example of a nonlinear dynamical system, we employ recurrence time distribution of a chosen event to derive a test statistic for testing the null hypothesis of one regime versus the alternative of having two or more regimes involved in a time series. This simple chi-square type of statistic is compared with existing likelihood ratio based ones that are all, in general, very complex in construction. The power of our proposed test is rather satisfactory and the computing load required is significantly more economical.

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    Article provided by Elsevier in its journal Statistics & Probability Letters.

    Volume (Year): 79 (2009)
    Issue (Month): 24 (December)
    Pages: 2443-2450

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    Handle: RePEc:eee:stapro:v:79:y:2009:i:24:p:2443-2450
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    1. Schwert, G. William, 1989. "Business cycles, financial crises, and stock volatility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 83-125, January.
    2. Simon van Norden & Huntley Schaller & ), 1995. "Regime Switching in Stock Market Returns," Econometrics 9502002, EconWPA.
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    8. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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