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Testing Shifts in Financial Models with Conditional Heteroskedasticity: An Empirical Distribution Function Approach

  • Shinn-Juh Lin

    (University of Technology - Sydney)

  • Jian Yang

    (University of Western Ontario)

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    This paper proposes a class of test procedures for a structural change with an unknown change point. In particular, we consider a general financial time series model with conditional heteroskedasticity. The test statistics are constructed via the empirical distribution approach and are aiming for detecting a change that may occur beyond the second moment. We derive the asymptotic null distributions of the test statistics and tabulate the critical values. Studies of the local power show that our test statistics have non-trivial local power. Finite sample performances of the proposed tests are studied via Monte Carlo methods. The test procedures are applied to test change point in the S&P 500 daily index.

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    File URL: http://fmwww.bc.edu/RePEc/es2000/0063.pdf
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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0063.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0063
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    1. Hansen, B.E., 1992. "Autoregressive Conditional Density Estimation," RCER Working Papers 322, University of Rochester - Center for Economic Research (RCER).
    2. Lamoureux, Christopher G & Lastrapes, William D, 1990. " Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects," Journal of Finance, American Finance Association, vol. 45(1), pages 221-29, March.
    3. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
    4. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-34, April.
    5. 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.
    6. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    7. PERRON, BenoƮt, 1999. "Jumps in the Volatility of Financial Markets," Cahiers de recherche 9912, Universite de Montreal, Departement de sciences economiques.
    8. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
    9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    10. Bai, Jushan, 1996. "Testing for Parameter Constancy in Linear Regressions: An Empirical Distribution Function Approach," Econometrica, Econometric Society, vol. 64(3), pages 597-622, May.
    11. Davidson, Russell & MacKinnon, James G, 1998. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 1-26, January.
    12. Delgado, Miguel A. & Hidalgo, Javier, 2000. "Nonparametric inference on structural breaks," Journal of Econometrics, Elsevier, vol. 96(1), pages 113-144, May.
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