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Structural breaks and smooth transition autoregressive processes: an application to the US stock value ratios


  • Gawon Yoon


In this study, we show that a very simple structural break process can be easily confused with an Exponential Smooth Transition Autoregressive (ESTAR) model. Nonlinear estimates of an ESTAR model also appear to be quite significant and plausible when the model is applied to a structural break process. Testing for structural breaks is, therefore, imperative to avoid finding spurious nonlinear relations. Throughout this study, we illustrate our main findings with the value ratios from the Standard & Poor's 500 (S&P 500) stock price.

Suggested Citation

  • Gawon Yoon, 2011. "Structural breaks and smooth transition autoregressive processes: an application to the US stock value ratios," Applied Economics, Taylor & Francis Journals, vol. 43(18), pages 2313-2320.
  • Handle: RePEc:taf:applec:v:43:y:2011:i:18:p:2313-2320
    DOI: 10.1080/00036840903166228

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