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Testing for covariance stationarity of stock returns in the presence of structural breaks: an intervention analysis

Listed author(s):
  • Ada Ho
  • Alan Wan

This paper investigates whether the stock return series of Australia, Hong Kong, Singapore and the US are covariance stationary using Omran and McKenzie's (The Statistician, 48, 361-69, 1999) testing procedure which comprises the Loretan and Phillips (1994) test and an intervention analysis. The main objective of the procedure is to ascertain the role of structural breaks on the stochastic properties of the stock return series. It is found that the intervention due to the 1997 Asian financial crisis is significant in the case of Hong Kong and Singapore, for which the hypothesis of covariance stationarity cannot be rejected after the effects of the financial crisis have been properly filtered. On the other hand, the evidence suggests that neither the Asian crisis nor the 1998 currency crisis of Russia and Latin America has any significant impact on the stock return series of Australia and the US, which are found to be covariance stationary and covariance nonstationary, respectively.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 9 (2002)
Issue (Month): 7 ()
Pages: 441-447

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Handle: RePEc:taf:apeclt:v:9:y:2002:i:7:p:441-447
DOI: 10.1080/13504850110090210
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