Testing for Instability in Covariance Structures
We propose a test for the stability over time of the covariance matrix of multivariate time series. The analysis is extended to the eigensystem to ascertain changes due to instability in the eigenvalues and/or eigenvectors. Using strong Invariance Principle and Law of Large Numbers, we normalize the CUSUM-type statistics to calculate their supremum over the whole sample. The power properties of the test versus local alternatives and alternatives close to the beginning/end of sample are investigated theoretically and via simulation. The testing procedure is validated through an application to 18 US interest rates over 1997-2011, finding instability at the end-2007/beginning-2008. Key Words: Covariance Matrix, Eigensystem, Changepoint, Term Structure of Interest Rates, CUSUM statistic JEL No. C1, C22, C5
|Date of creation:||Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (315) 443-3114
Fax: (315) 443-1081
Web page: http://www.maxwell.syr.edu/cpr.aspxEmail:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:max:cprwps:131. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kelly Bogart)or (Katrina Wingle)
If references are entirely missing, you can add them using this form.