Testing for changes in volatility in heteroskedastic time series - a further examination
We consider tests for sudden changes in the unconditional volatility of conditionally heteroskedastic time series based on cumulative sums of squares. When applied to the original series these tests suffer from severe size distortions, where the correct null hypothesis of no volatility change is rejected much too frequently. Applying the tests to standardized residuals from an estimated GARCH model results in good size and reasonable power properties when testing for a single break in the variance. The tests also appear to be robust to different types of misspecification. An iterative algorithm is designed to test sequentially for the presence of multiple changes in volatility. An application to emerging markets stock returns clearly illustrates the properties of the different test statistics.
|Keywords||CUSUM, GARCH models, change-point tests, emerging markets, structural breaks|
de Pooter, M.D., & van Dijk, D.J.C.. (2004). Testing for changes in volatility in heteroskedastic time series - a further examination (No. EI 2004-38). Report / Econometric Institute, Erasmus University Rotterdam. Retrieved from http://hdl.handle.net/1765/1627