Testing for causality in variance in the presence of breaks
We examine the size properties of tests for causality in variance in the presence of structural breaks in volatility. Extensive Monte Carlo simulations demonstrate that these tests suffer from severe size distortions when such breaks are not taken into account. Pre-testing the series for structural changes in volatility is shown to largely remedy the problem.
|Keywords||causality tests, structural change, volatitilty|
van Dijk, D.J.C., Osborn, D.R., & Sensier, M.. (2004). Testing for causality in variance in the presence of breaks (No. EI 2004-48). Retrieved from http://hdl.handle.net/1765/1801