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Structural Breaks And Financial Volatility
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Book Synopsis Structural Breaks in Financial Time Series by : Elena Andreou
Download or read book Structural Breaks in Financial Time Series written by Elena Andreou and published by . This book was released on 2012 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on structural breaks in financial time series. First we discuss the implications of structural breaks in financial time series for statistical inference purposes. In the second section we discuss the relevant asymptotic results and issues involved in general classifications of change-point tests in financial time series such historical versus sequential tests, parametric versus nonparametric tests and single versus multiple break tests. The third section reviews a number of structural change tests by focusing on certain characteristics or moments of financial time series such as structural break tests in the financial asset returns and volatility, long memory, tails and distribution. In addition, we review changepoint tests for the co-dependence between financial asset returns processes in the context of multivariate volatility models, copulae and last but not least asset pricing. In concluding we provide some areas of future research in the subject.
Book Synopsis Testing for Structural Breaks and Dynamic Changes in Emerging Market Volatility by : Duc Khuong Nguyen
Download or read book Testing for Structural Breaks and Dynamic Changes in Emerging Market Volatility written by Duc Khuong Nguyen and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The main objective of this paper is to test for structural breaks and dynamic changes in emerging market volatility from January 1985 to January 2003. We typically relate these issues to stock market reforms since the latter is often considered as one of the most important forces that promote economic growth and rapid maturation of the emerging markets of the world. We first estimate a bivariate GARCH-M model to obtain conditional volatility series for each market. Second, we test for significant structural breaks in the conditional volatility series to determine whether the observed break dates coincide with any of the stock market reforms. Third, the effect of liberalization policy on market volatility is formally tested using a pooled time-series cross-section estimation that includes a host of explanatory variables in addition to market reform variables. Overall, the results indicate that structural breaks in the dynamic patterns of the sample emerging market volatility do not happen together with official liberalization dates, but they coincide with ADR/Country Fund dates and with dates of large increases in the US capital flows. The pooled estimation generally supports the findings from structural break analysis. Hence, it is possible to claim that liberalization methods other than liberalization via a formal policy decree are the ones that significantly affect volatility.
Book Synopsis Structural Breaks and Financial Volatility by : Lucía Morales
Download or read book Structural Breaks and Financial Volatility written by Lucía Morales and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the fact that there is a substantial literature on the analysis of volatility spillovers between stock returns and domestic exchange rates, surprisingly, little empirical research has examined volatility spillovers between oil prices and emerging economies, where a clear gap of research have been found regarding to the BRIC financial markets and the effects of the 2007-2009 World economy crisis. This lack of research might appear as surprising given that energy markets are of particular interest as they are considered a fundamental reference for economic recovery and growth. Therefore, this work aims to address this gap on the literature by looking at the BRIC financial markets and their co-movements with regard to some energy markets (oil, natural gas and electricity) and also to the international pressures that may arise from fluctuations originated in the US stock markets. This research major findings show compelling evidence highlighting the weak integration levels that exist among the Chinese financial markets, energy markets and the US stock market. On the other hand, the Brazilian, Indian and Russian markets are found to be more sensitive to international shocks arisen from US markets and also to energy markets instability, especially with regard to oil market uncertainty. -- BRIC ; Energy Markets ; GARCH ; T-GARCH modeling ; Volatility
Book Synopsis Detecting Multiple Breaks in Financial Market Volatility Dynamics by : Elena Andreou
Download or read book Detecting Multiple Breaks in Financial Market Volatility Dynamics written by Elena Andreou and published by . This book was released on 2012 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper evaluates the performance of several recently proposed tests for structural breaks in conditional variance dynamics of asset returns. The tests apply to the class of ARCH and SV type processes as well as data-driven volatility estimators using high-frequency data. In addition to testing for the presence of breaks, the statistics identify the number and location of multiple breaks. We study the size and power of the new tests for detecting breaks in the conditional variance under various realistic univariate heteroskedastic models, change-point hypotheses and sampling schemes. The paper concludes with an empirical analysis using data from the stock and FX markets for which we find multiple breaks associated with the Asian and Russian financial crises. These events resulted in changes in the dynamics of volatility of asset returns in the samples prior and post the breaks.
Book Synopsis Are There Structural Breaks in Realized Volatility? by : Chun Liu
Download or read book Are There Structural Breaks in Realized Volatility? written by Chun Liu and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Constructed from high-frequency data, realized volatility (RV) provides an accurate estimate of the unobserved volatility of financial markets. This paper uses a Bayesian approach to investigate the evidence for structural breaks in reduced form time-series models of RV. We focus on the popular heterogeneous autoregressive (HAR) models of the logarithm of realized volatility. Using Monte Carlo simulations we demonstrate that our estimation approach is effective in identifying and dating structural breaks. Applied to daily S, and P 500 data from 1993-2004, we find strong evidence of a structural break in early 1997. The main effect of the break is a reduction in the variance of log-volatility. The evidence of a break is robust to different models including a GARCH specification for the conditional variance of log(RV).
Book Synopsis Long Memory Versus Structural Breaks in Modeling and Forecasting Realized Volatility by : Kyongwook Choi
Download or read book Long Memory Versus Structural Breaks in Modeling and Forecasting Realized Volatility written by Kyongwook Choi and published by . This book was released on 2009 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the possibility of structural breaks in the daily realized volatility of the Deutschemark/Dollar, Yen/Dollar and Yen/Deutschemark spot exchange rates with observed long-memory behavior. We find that structural breaks in the mean can partly explain the persistence of realized volatility. We propose a VAR-RV-Break model that provides superior predictive ability when the timing of future breaks is known. With unknown break dates and sizes, we find that a VAR-RV-I(d) long memory model provides a robust forecasting method even when the true financial volatility series are generated by structural breaks.
Book Synopsis Modelling Structural Breaks, Long Memory and Stock Market Volatility by : Anindya Banerjee
Download or read book Modelling Structural Breaks, Long Memory and Stock Market Volatility written by Anindya Banerjee and published by . This book was released on 2005 with total page 373 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Forecasting in the Presence of Structural Breaks and Model Uncertainty by : David E. Rapach
Download or read book Forecasting in the Presence of Structural Breaks and Model Uncertainty written by David E. Rapach and published by Emerald Group Publishing. This book was released on 2008-02-29 with total page 691 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting in the presence of structural breaks and model uncertainty are active areas of research with implications for practical problems in forecasting. This book addresses forecasting variables from both Macroeconomics and Finance, and considers various methods of dealing with model instability and model uncertainty when forming forecasts.
Book Synopsis Structural Breaks in Volatility Spillovers Between International Financial Markets by : Robert Maderitsch
Download or read book Structural Breaks in Volatility Spillovers Between International Financial Markets written by Robert Maderitsch and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper conducts an investigation of volatility transmission between stock markets in Hong Kong, Europe and the United States covering the time period from 2000 up to 2011. Using intradaily data we compute realized volatility time series for the three markets and employ a Heterogeneous Autoregressive Distributed Lag Model as our baseline econometric specification. Motivated by the presence of various crisis events contained in our sample, we detect time-variation and structural breaks in volatility spillovers. Particularly during the financial crisis of 2007, we find effects consistent with the notion of contagion, suggesting strong and sudden increases in the cross-market synchronization of chronologically succeeding volatilities. Investigating the role of mean breaks and conditional heteroskedasticity in the realized volatilities, however, we find the latter to be the main driver of breaks in volatility spillovers. Taking the volatility of realized volatilities into account, we find no evidence of contagion anymore.
Book Synopsis Structural Breaks and Volatility Spillover in South Asian Economies by : Hafiz Rauf Iqbal
Download or read book Structural Breaks and Volatility Spillover in South Asian Economies written by Hafiz Rauf Iqbal and published by . This book was released on 2020 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relationship between volatility spillovers in the presence of structural breaks with specific reference to South Asian Capital markets. Global financial crisis of 2007-2009 has compelled policy makers to realize that financial instability has potential to threaten economic stability and growth; therefore, managing financial crisis is inevitable. To manage the impact of financial crises, understanding the dynamics of volatility spillover across various markets is imperative. This study has investigated the possible emergence of structural breaks in risk pattern subsequent to global financial crises in south Asian markets. Using the data from July 2002 to June 2016, employing Exponential GARCH methodology, this study finds the significant volatility spillover subsequent to financial crisis of 2007-09. Therefore, the existence of structural break in risk pattern of south Asian capital markets cannot be fully rejected. This conclusion is of prime importance to policy maker in devising policy guidelines with respect to financial crises.
Book Synopsis Structural Breaks and Forecasting in Empirical Finance and Macroeconomics by : Zhongfang He
Download or read book Structural Breaks and Forecasting in Empirical Finance and Macroeconomics written by Zhongfang He and published by . This book was released on 2009 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays in empirical finance and macroeconomics. The first essay proposes a new structural-break vector autoregressive model for predicting real output growth by the nominal yield curve. The model allows for the possibility of both in-sample and out-of-sample breaks in parameter values and uses information in historical regimes to make inference on out-of-sample breaks. A Bayesian estimation and forecasting procedure is developed which accounts for the uncertainty of both structural breaks and model parameters. I discuss dynamic consistency when forecasting recursively and provide a solution. Applied to monthly US data, I find strong evidence of breaks in the predictive relation between the yield curve and output growth. Incorporating the possibility of structural breaks improves out-of-sample forecasts of output growth.The third essay proposes a new tilt stochastic volatility model which extends the existing volatility models by modeling the asymmetric correlation between return and volatility innovations in a unified and flexible framework. The Efficient Importance Sampling (EIS) procedure is adapted to estimate the model. Simulation studies show that the Maximum Likelihood (ML)-EIS estimation of the model is accurate. The new model is applied to the CRSP daily returns. I find the extensions are significant and incorporating them improves the accuracy of volatility estimates.The second essay proposes a sequential Monte Carlo method for estimating GARCH models subject to an unknown number of structural breaks. We use particle filtering techniques that allow for fast and efficient updates of posterior quantities and forecasts in real-time. The method conveniently deals with the path dependence problem that arises in these type of models. The performance of the method is shown to work well using simulated data. Applied to daily NASDAQ returns, we find strong evidence of structural breaks in the long-run variance of returns. Models with flexible return distributions such as t-innovations or with jumps indicate fewer breaks than models with normal return innovations and are favored by the data.
Book Synopsis Essays on Time-Varying Volatility and Structural Breaks in Macroeconomics and Econometrics by : Nyamekye Asare
Download or read book Essays on Time-Varying Volatility and Structural Breaks in Macroeconomics and Econometrics written by Nyamekye Asare and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is comprised of three independent essays. One essay is in the field of macroeconomics and the other two are in time-series econometrics. The first essay, "Productivity and Business Investment over the Business Cycle", is co-authored with my co-supervisor Hashmat Khan. This essay documents a new stylized fact: the correlation between labour productivity and real business investment in the U.S. data switching from 0.54 to -0.1 in 1990. With the assistance of a bivariate VAR, we find that the response of investment to identified technology shocks has changed signs from positive to negative across two sub-periods: ranging from the time of the post-WWII era to the end of 1980s and from 1990 onwards, whereas the response to non-technology shocks has remained relatively unchanged. Also, the volatility of technology shocks declined less relative to the non-technology shocks. This raises the question of whether relatively more volatile technology shocks and the negative response of investment can together account for the decreased correlation. To answer this question, we consider a canonical DSGE model and simulate data under a variety of assumptions about the parameters representing structural features and volatility of shocks. The second and third essays are in time series econometrics and solely authored by myself. The second essay, however, focuses on the impact of ignoring structural breaks in the conditional volatility parameters on time-varying volatility parameters. The focal point of the third essay is on empirical relevance of structural breaks in time-varying volatility models and the forecasting gains of accommodating structural breaks in the unconditional variance. There are several ways in modeling time-varying volatility. One way is to use the autoregressive conditional heteroskedasticity (ARCH)/generalized ARCH (GARCH) class first introduced by Engle (1982) and Bollerslev (1986). One prominent model is Bollerslev (1986) GARCH model in which the conditional volatility is updated by its own residuals and its lags. This class of models is popular amongst practitioners in finance because they are able to capture stylized facts about asset returns such as fat tails and volatility clustering (Engle and Patton, 2001; Zivot, 2009) and require maximum likelihood methods for estimation. They also perform well in forecasting volatility. For example, Hansen and Lunde (2005) find that it is difficult to beat a simple GARCH(1,1) model in forecasting exchange rate volatility. Another way of modeling time-varying volatility is to use the class of stochastic volatility (SV) models including Taylor's (1986) autoregressive stochastic volatility (ARSV) model. With SV models, the conditional volatility is updated only by its own lags and increasingly used in macroeconomic modeling (i.e.Justiniano and Primiceri (2010)). Fernandez-Villaverde and Rubio-Ramirez (2010) claim that the stochastic volatility model fits better than the GARCH model and is easier to incorporate into DSGE models. However, Creal et al. (2013) recently introduced a new class of models called the generalized autoregressive score (GAS) models. With the GAS volatility framework, the conditional variance is updated by the scaled score of the model's density function instead of the squared residuals. According to Creal et al. (2013), GAS models are advantageous to use because updating the conditional variance using the score of the log-density instead of the second moments can improve a model's fit to data. They are also found to be less sensitive to other forms of misspecification such as outliers. As mentioned by Maddala and Kim (1998), structural breaks are considered to be one form of outliers. This raises the question about whether GAS volatility models are less sensitive to parameter non-constancy. This issue of ignoring structural breaks in the volatility parameters is important because neglecting breaks can cause the conditional variance to exhibit unit root behaviour in which the unconditional variance is undefined, implying that any shock to the variance will not gradually decline (Lamoureux and Lastrapes, 1990). The impact of ignoring parameter non-constancy is found in GARCH literature (see Lamoureux and Lastrapes, 1990; Hillebrand, 2005) and in SV literature (Psaradakis and Tzavalis, 1999; Kramer and Messow, 2012) in which the estimated persistence parameter overestimates its true value and approaches one. However, it has never been addressed in GAS literature until now. The second essay uses a simple Monte-Carlo simulation study to examine the impact of neglecting parameter non-constancy on the estimated persistence parameter of several GAS and non-GAS models of volatility. Five different volatility models are examined. Of these models, three --the GARCH(1,1), t-GAS(1,1), and Beta-t-EGARCH(1,1) models -- are GAS models, while the other two -- the t-GARCH(1,1) and EGARCH(1,1) models -- are not. Following Hillebrand (2005) who studied only the GARCH model, this essay examines the extent of how biased the estimated persistence parameter are by assessing impact of ignoring breaks on the mean value of the estimated persistence parameter. The impact of neglecting parameter non-constancy on the empirical sampling distributions and coverage probabilities for the estimated persistence parameters are also studied in this essay. For the latter, studying the effect on the coverage probabilities is important because a decrease in coverage probabilities is associated with an increase in Type I error. This study has implications for forecasting. If the size of an ignored break in parameters is small, then there may not be any gains in using forecast methods that accommodate breaks. Empirical evidence suggests that structural breaks are present in data on macro-financial variables such as oil prices and exchange rates. The potentially serious consequences of ignoring a break in GARCH parameters motivated Rapach and Strauss (2008) and Arouri et al. (2012) to study the empirical relevance of structural breaks in the context of GARCH models. However, the literature does not address the empirical relevance of structural breaks in the context of GAS models. The third and final essay contributes to this literature by extending Rapach and Strauss (2008) to include the t-GAS model and by comparing its performance to that of two non-GAS models, the t-GARCH and SV models. The empirical relevance of structural breaks in the models of volatility is assessed using a formal test by Dufour and Torres (1998) to determine how much the estimated parameters change over sub-periods. The in-sample performance of all the models is analyzed using both the weekly USD trade-weighted index between January 1973 and October 2016 and spot oil prices based on West Texas Intermediate between January 1986 and October 2016. The full sample is split into smaller subsamples by break dates chosen based on historical events and policy changes rather than formal tests. This is because commonly-used tests such as CUSUM suffer from low power (Smith, 2008; Xu, 2013). For each sub-period, all models are estimated using either oil or USD returns. The confidence intervals are constructed for the constant of the conditional parameter and the score parameter (or ARCH parameter in GARCH and t-GARCH models). Then Dufour and Torres's union-intersection test is applied to these confidence intervals to determine how much the estimated parameter change over sub-periods. If there is a set of values that intersects the confidence intervals of all sub-periods, then one can conclude that the parameters do not change that much. The out-of-sample performance of all time-varying volatility models are also assessed in the ability to forecast the mean and variance of oil and USD returns. Through this analysis, this essay also addresses whether using models that accommodate structural breaks in the unconditional variance of both GAS and non-GAS models will improve forecasts.
Book Synopsis Dual Long-Memory, Structural Breaks and the Link Between Turnover and the Range-Based Volatility by : Menelaos Karanasos
Download or read book Dual Long-Memory, Structural Breaks and the Link Between Turnover and the Range-Based Volatility written by Menelaos Karanasos and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the issue of temporal ordering of the range-based volatility and turnover volume in the Korean market for the period 1995-2005. We examine the dynamics of the two variables and their respective uncertainties using a bivariate dual long-memory model. We distinguish volume trading before the Asia financial crisis from trading after the crisis. We find that the apparent long-memory in the variables is quite resistant to the presence of breaks. However, when we take into account structural breaks the order of integration of the conditional variance series decreases considerably. Moreover, the impact of foreign volume on volatility is negative in the pre-crisis period but turns to positive after the crisis. This result is consistent with the view that foreign purchases tend to lower volatility in emerging markets - especially in the first few years after market liberalization when foreigners are buying into local markets - whereas foreign sales increase volatility. Before the crisis there is no causal effect for domestic volume on volatility whereas in the post-crisis period total and domestic volumes affect volatility positively. The former result is in line with the theoretical underpinnings that predict that trading within domestic investor groups does not affect volatility. The latter result is consistent with the theoretical argument that the positive relation between the two variables is driven by the uninformed general public.
Book Synopsis Econometrics of Structural Change by : Walter Krämer
Download or read book Econometrics of Structural Change written by Walter Krämer and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 134 pages. Available in PDF, EPUB and Kindle. Book excerpt: Econometric models are made up of assumptions which never exactly match reality. Among the most contested ones is the requirement that the coefficients of an econometric model remain stable over time. Recent years have therefore seen numerous attempts to test for it or to model possible structural change when it can no longer be ignored. This collection of papers from Empirical Economics mirrors part of this development. The point of departure of most studies in this volume is the standard linear regression model Yt = x;fJt + U (t = I, ... , 1), t where notation is obvious and where the index t emphasises the fact that structural change is mostly discussed and encountered in a time series context. It is much less of a problem for cross section data, although many tests apply there as well. The null hypothesis of most tests for structural change is that fJt = fJo for all t, i.e. that the same regression applies to all time periods in the sample and that the disturbances u are well behaved. The well known Chow test for instance assumes t that there is a single structural shift at a known point in time, i.e. that fJt = fJo (t
Book Synopsis Structural Breaks in an Endogenous Growth Model by : Timothy Cogley
Download or read book Structural Breaks in an Endogenous Growth Model written by Timothy Cogley and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects of parameter uncertainty prompted by structural breaks. In our model, agents respond differently to uncertainty prompted by regime shifts in shock processes than they react to comparable perceived increases in shock volatility. The magnitude of the response to an increase in uncertainty about TFP associated with a structural break is greater than that of a response to a comparable perceived rise in volatility. This is because lifetime utility varies more when shocks shift beliefs and perceived wealth.
Book Synopsis Structural Breaks and Common Factors in the Volatility of the Fama-French Factor Portfolios by : Andrea Beltratti
Download or read book Structural Breaks and Common Factors in the Volatility of the Fama-French Factor Portfolios written by Andrea Beltratti and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the time series properties of the Fama-French factor returns volatility processes. Among the original findings of this paper, we point to structural breaks in the volatility of the factors, and strong coincidence between the timing of the breaks in the volatility of the market portfolio and the timing of the breaks in the volatility of SMB. Moreover, analyses of the break free series show that two common long memory factors drive the long-run evolution of the series. The first factor mainly affects the volatility of the market and the volatility of SMB, while the second one mainly affects the volatility of HML. These results imply that the time-varing volatility of stocks is driven mainly by the time-varying volatility of the market as a whole and of the HML portfolio, while the volatility of SMB does not seem to be an independent driving force.
Book Synopsis Structural Change and Spurious Persistence in Stochastic Volatility by : Walter Krämer
Download or read book Structural Change and Spurious Persistence in Stochastic Volatility written by Walter Krämer and published by . This book was released on 2011 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt:
