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Changes of structure in financial time series and the GARCH model

  • Thomas Mikosch

    (Dept. Actuarial Mathematics, University of Copenhagen)

  • Catalin Starica

    (Dept. Mathematical Statistics & Economics, Gothenburg University & CTH)

In this paper we propose a goodness of fit test that checks the resemblance of the spectral density of a GARCH process to that of the log-returns. The asymptotic behavior of the test statistics are given by a functional central limit theorem for the integrated periodogram of the data. A simulation study investigates the small sample behavior, the size and the power of our test. We apply our results to the S&P500 returns and detect changes in the structure of the data related to shifts of the unconditional variance. We show how a long range dependence type behavior in the sample ACF of absolute returns might be induced by these shifts.

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File URL: http://econwpa.repec.org/eps/em/papers/0412/0412003.pdf
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Paper provided by EconWPA in its series Econometrics with number 0412003.

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Length: 22 pages
Date of creation: 06 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpem:0412003
Note: Type of Document - pdf; pages: 22
Contact details of provider: Web page: http://econwpa.repec.org

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