IDEAS home Printed from https://ideas.repec.org/p/hhs/gunsru/2007_009.html
   My bibliography  Save this paper

Evaluations of likelihood based surveillance of volatility

Author

Listed:
  • Bock, David

    (Statistical Research Unit, Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

The volatility of asset returns are important in finance. Different likelihood based methods of statistical surveillance for detecting a change in the variance are evaluated. The differences are how the partial likelihood ratios are weighted. The full likelihood ratio, Shiryaev-Roberts, Shewhart and the CUSUM methods are derived in case of an independent and identically distributed Gaussian process. The behavior of the methods is studied both when there is no change and when the change occurs at different time points. The false alarms are controlled by the median run length. Differences and limiting equalities of the methods are shown. The performances when the process parameters for which the methods are optimized for differ from the true values of the parameters are evaluated. The methods are illustrated on a period of Standard and Poor’s 500 stock market index.

Suggested Citation

  • Bock, David, 2007. "Evaluations of likelihood based surveillance of volatility," Research Reports 2007:9, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
  • Handle: RePEc:hhs:gunsru:2007_009
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/2077/8477
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frisén, Marianne, 2007. "Principles for Multivariate Surveillance," Research Reports 2007:4, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    2. Marianne Frisén, 2003. "Statistical Surveillance. Optimality and Methods," International Statistical Review, International Statistical Institute, vol. 71(2), pages 403-434, August.
    3. Elena Andreou & Eric Ghysels, 2002. "Detecting multiple breaks in financial market volatility dynamics," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 579-600.
    4. Bock, David, 2007. "Consequences of using the probability of a false alarm as the false alarm measure," Research Reports 2007:3, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    5. A. I. McLeod & W. K. Li, 1983. "Diagnostic Checking Arma Time Series Models Using Squared‐Residual Autocorrelations," Journal of Time Series Analysis, Wiley Blackwell, vol. 4(4), pages 269-273, July.
    6. Andersson, Eva, 2007. "Effect of dependency in systems for multivariate surveillance," Research Reports 2007:1, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    7. Frisén, Marianne, 2007. "Optimal Sequential Surveillance for Finance, Public Health, and Other Areas," Research Reports 2007:2, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    8. E. Andersson & D. Bock & M. Frisen, 2006. "Some statistical aspects of methods for detection of turning points in business cycles," Journal of Applied Statistics, Taylor & Francis Journals, vol. 33(3), pages 257-278.
    9. Bock, David & Andersson, Eva & Frisén, Marianne, 2007. "Similarities and differences between statistical surveillance and certain decision rules in finance," Research Reports 2007:8, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    10. Christian Sonesson & David Bock, 2003. "A review and discussion of prospective statistical surveillance in public health," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 166(1), pages 5-21, February.
    11. Andersson, Eva & Bock, David & Frisén, Marianne, 2007. "Modeling influenza incidence for the purpose of on-line monitoring," Research Reports 2007:5, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    12. Bock, David & Andersson, Eva & Frisén, Marianne, 2007. "Statistical Surveillance of Epidemics: Peak Detection of Influenza in Sweden," Research Reports 2007:6, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    13. A. F. B. Costa & M. A. Rahim, 2004. "Monitoring Process Mean and Variability with One Non-central Chi-square Chart," Journal of Applied Statistics, Taylor & Francis Journals, vol. 31(10), pages 1171-1183.
    14. Eva Andersson & David Bock & Marianne Frisén, 2004. "Detection of Turning Points in Business Cycles," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2004(1), pages 93-108.
    15. Chu, Chia-Shang James & Stinchcombe, Maxwell & White, Halbert, 1996. "Monitoring Structural Change," Econometrica, Econometric Society, vol. 64(5), pages 1045-1065, September.
    16. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schiöler, Linus, 2009. "Explorative analysis of spatial patterns of influenza incidences in Sweden 1999—2008," Research Reports 2008:5, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    2. Schiöler, Linus & Frisén, Marianne, 2008. "On statistical surveillance of the performance of fund managers," Research Reports 2008:4, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    3. Andersson, Eva, 2008. "Hotelling´s T2 Method in Multivariate On-line Surveillance. On the Delay of an Alarm," Research Reports 2008:3, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    4. Frisén, Marianne, 2011. "Methods and evaluations for surveillance in industry, business, finance, and public health," Research Reports 2011:3, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    5. Frisén, Marianne & Andersson, Eva & Schiöler, Linus, 2009. "Sufficient reduction in multivariate surveillance," Research Reports 2009:2, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bock, David & Pettersson, Kjell, 2007. "Explorative analysis of spatial aspects on the Swedish influenza data," Research Reports 2007:10, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    2. Bock, David & Andersson, Eva & Frisén, Marianne, 2007. "Statistical Surveillance of Epidemics: Peak Detection of Influenza in Sweden," Research Reports 2007:6, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    3. Bock, David & Andersson, Eva & Frisén, Marianne, 2007. "Similarities and differences between statistical surveillance and certain decision rules in finance," Research Reports 2007:8, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    4. Andersson, Eva, 2008. "Hotelling´s T2 Method in Multivariate On-line Surveillance. On the Delay of an Alarm," Research Reports 2008:3, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    5. Andersson, Eva & Kühlmann-Berenzon, Sharon & Linde, Annika & Schiöler, Linus & Rubinova, Sandra & Frisén, Marianne, 2007. "Predictions by early indicators of the time and height of yearly influenza outbreaks in Sweden," Research Reports 2007:7, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    6. Bock, David, 2007. "Consequences of using the probability of a false alarm as the false alarm measure," Research Reports 2007:3, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    7. Schiöler, Linus & Frisén, Marianne, 2008. "On statistical surveillance of the performance of fund managers," Research Reports 2008:4, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    8. Pettersson, Kjell, 2008. "On curve estimation under order restrictions," Research Reports 2007:15, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    9. Andersson, Eva & Bock, David & Frisén, Marianne, 2007. "Modeling influenza incidence for the purpose of on-line monitoring," Research Reports 2007:5, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    10. Frisén, Marianne, 2011. "Methods and evaluations for surveillance in industry, business, finance, and public health," Research Reports 2011:3, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    11. Cizek, P. & Haerdle, W. & Spokoiny, V., 2007. "Adaptive Pointwise Estimation in Time-Inhomogeneous Time-Series Models," Discussion Paper 2007-35, Tilburg University, Center for Economic Research.
    12. Andreou, Elena & Ghysels, Eric, 2006. "Monitoring disruptions in financial markets," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 77-124.
    13. Schiöler, Linus, 2009. "Explorative analysis of spatial patterns of influenza incidences in Sweden 1999—2008," Research Reports 2008:5, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    14. Frisén, Marianne & Andersson, Eva, 2008. "Semiparametric surveillance of outbreaks," Research Reports 2007:11, University of Gothenburg, Statistical Research Unit, School of Business, Economics and Law.
    15. repec:hum:wpaper:sfb649dp2008-002 is not listed on IDEAS
    16. David Bock, 2008. "Aspects on the control of false alarms in statistical surveillance and the impact on the return of financial decision systems," Journal of Applied Statistics, Taylor & Francis Journals, vol. 35(2), pages 213-227.
    17. Hendry, David F. & Clements, Michael P., 2003. "Economic forecasting: some lessons from recent research," Economic Modelling, Elsevier, vol. 20(2), pages 301-329, March.
    18. Alagidede, Paul & Panagiotidis, Theodore, 2009. "Modelling stock returns in Africa's emerging equity markets," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 1-11, March.
    19. Eleni Constantinou & Robert Georgiades & Avo Kazandjian & George Kouretas, 2005. "Mean and variance causality between the Cyprus Stock Exchange and major equity markets," Working Papers 0501, University of Crete, Department of Economics.
    20. Baur, Dirk & Jung, Robert C., 2006. "Return and volatility linkages between the US and the German stock market," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 598-613, June.
    21. Theodore Panagiotidis, 2010. "Market efficiency and the Euro: the case of the Athens stock exchange," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(3), pages 237-251, July.

    More about this item

    Keywords

    surveillance; statistical process control; monitoring; likelihood ratio; Shewhart; CUSUM;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:gunsru:2007_009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Linus Schiöler (email available below). General contact details of provider: http://www.statistics.gu.se/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.