A Switching Model with Flexible Threshold Variable: With an Application to Nonlinear Dynamics in Stock Returns

Massacci, Daniele

doi:10.2139/ssrn.2176178

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A Switching Model with Flexible Threshold Variable: With an Application to Nonlinear Dynamics in Stock Returns

10 Pages Posted: 17 Nov 2012 Last revised: 19 Apr 2017

See all articles by Daniele Massacci

Daniele Massacci

King's College London; University of Naples Federico II; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Date Written: January 21, 2013

Abstract

This paper proposes an extension to threshold-type switching models that lets the threshold variable be a linear combination of exogenous variables with unknown coefficients. An algorithm to estimate the model's parameters by least squares is provided and the validity of the methodological framework is assessed by a Monte Carlo study. The empirical usefulness of the proposed specification is illustrated by an application to US stock returns.

Keywords: Threshold Model, Flexible Threshold Variable, Stock Returns

JEL Classification: C13, C22, G12

Suggested Citation: Suggested Citation

Massacci, Daniele, A Switching Model with Flexible Threshold Variable: With an Application to Nonlinear Dynamics in Stock Returns (January 21, 2013). Available at SSRN: https://ssrn.com/abstract=2176178 or http://dx.doi.org/10.2139/ssrn.2176178