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Editor: Universidad Carlos III de Madrid

Issued date: 2003-11

Serie-No.: UC3M Working Papers. Statistics and Econometrics2003-13

Abstract:The objective of this paper is to analyze the finite sample performance of two variants of the likelihood ratio test for detecting a level shift in uncorrelated conditionally heteroscedastic time series. We show that the behavior of the likelihood ratio test iThe objective of this paper is to analyze the finite sample performance of two variants of the likelihood ratio test for detecting a level shift in uncorrelated conditionally heteroscedastic time series. We show that the behavior of the likelihood ratio test is not appropriate in this context whereas if the test statistic is appropriately standardized, it works better. We also compare two alternative procedures for testing for several level shifts. The results are illustrated by analyzing daily returns of exchange rates.+-





Author: Carnero, María Ángeles; Peña, Daniel; Ruiz, Esther

Source: http://e-archivo.uc3m.es


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Universidad Carlos III de Madrid Repositorio institucional e-Archivo http:--e-archivo.uc3m.es Departamento de Estadística DES - Working Papers.
Statistics and Econometrics.
WS 2003-11 Detecting level shifts in the presence of conditional heteroscedasticity. Carnero, María Ángeles http:--hdl.handle.net-10016-201 Descargado de e-Archivo, repositorio institucional de la Universidad Carlos III de Madrid Working Paper 03-63 Statistics and Econometrics Series 13 November 2003 Departamento de Estadística y Econometría Universidad Carlos III de Madrid Calle Madrid, 126 28903 Getafe (Spain) Fax (34) 91 624-98-49 DETECTING LEVEL SHIFTS IN THE PRESENCE OF CONDITIONAL HETEROSCEDASTICITY. M.
Angeles Carnero, Daniel Peña and Esther Ruiz* Abstract The objective of this paper is to analyze the finite sample performance of two variants of the likelihood ratio test for detecting a level shift in uncorrelated conditionally heteroscedastic time series.
We show that the behavior of the likelihood ratio test is not appropriate in this context whereas if the test statistic is appropriately standardized, it works better.
We also compare two alternative procedures for testing for several level shifts.
The results are illustrated by analyzing daily returns of exchange rates. Keywords: EGARCH, GARCH, Likelihood Ratio, Stochastic Volatility. *Carnero, Dpto.
Fundamentos del Análisis Económico, Universidad de Alicante, e-mail: acarnero@merlin.fae.ua.es; Peña, Departamento de Estadística y Econometría, Universidad Carlos III de Madrid, C- Madrid, 126, 28903 Getafe.
Madrid, e-mail: dpena@est-econ.uc3m.es; Ruiz, Departamento de Estadística y Econometría, Universidad Carlos III de Madrid, e-mail: ortega@est-econ.uc3m.es.
Financial support from projects BEC2000-0167 and BEC 2002-03720 by the Spanish Government is acknowledged.
Part of this work was carried out while the first author was visiting Nuffield College during the summer 2003.
She is indebted to Neil Shephard for fina...





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