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Testing of binary regime switching models using squeeze duration analysis

Author

Listed:
  • Milan Kumar Das

    (Mathematical Sciences, Indian Institute of Science Education and Research, Pune, India)

  • Anindya Goswami

    (Mathematical Sciences, Indian Institute of Science Education and Research, Pune, India)

Abstract

We have developed a statistical technique to test the model assumption of binary regime switching extension of the geometric Brownian motion (GBM) model by proposing a new discriminating statistics. Given a time series data, we have identified an admissible class of the regime switching candidate models for the statistical inference. By performing several systematic experiments, we have successfully shown that the sampling distribution of the test statistics differs drastically, if the model assumption changes from GBM to Markov modulated GBM, or to semi-Markov modulated GBM. Furthermore, we have implemented this statistics for testing the regime switching hypothesis with Indian sectoral indices.

Suggested Citation

  • Milan Kumar Das & Anindya Goswami, 2019. "Testing of binary regime switching models using squeeze duration analysis," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-20, March.
    • Handle: RePEc:wsi:ijfexx:v:06:y:2019:i:01:n:s2424786319500063
    DOI: 10.1142/S2424786319500063
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    References listed on IDEAS

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    Cited by:

    1. Milan Kumar Das & Anindya Goswami & Sharan Rajani, 2023. "Inference of Binary Regime Models with Jump Discontinuities," Sankhya B: The Indian Journal of Statistics, Springer;Indian Statistical Institute, vol. 85(1), pages 49-86, May.
    2. Milan Kumar Das & Anindya Goswami & Sharan Rajani, 2019. "Inference of Binary Regime Models with Jump Discontinuities," Papers 1910.10606, arXiv.org, revised Mar 2022.

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