Structural Change Tests in Tail Behaviour and the Asian Crisis

32 Pages Posted: 31 Oct 2008

See all articles by Carmela Quintos

Carmela Quintos

Simon School, University of Rochester

Zhenhong Fan

New York University (NYU)

Peter C. B. Phillips

University of Auckland Business School; Yale University - Cowles Foundation; Singapore Management University - School of Economics

Date Written: January 1999

Abstract

This paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill's conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The recursive test IS shown to be inconsistent in one direction, and only a one-sided test isrecommended. Specifically, the test can be used when the alternative hypothesis is that the tail index decreases over time. A rolling and sequential version of the test is consistent in both directions.The methods are illustrated on recent stock price data for Thailand, Malaysia and Indonesia. The period covers the recent Asian financial crisis and enables us to assess whether break points in domestic asset return distributions are related to known changes in institutional arrangements in the foreign currency markets of these countries.

Suggested Citation

Quintos, Carmela and Fan, Zhenhong and Phillips, Peter C. B., Structural Change Tests in Tail Behaviour and the Asian Crisis (January 1999). NYU Working Paper No. SOR-99-2, Available at SSRN: https://ssrn.com/abstract=1290962

Carmela Quintos (Contact Author)

Simon School, University of Rochester ( email )

Rochester, NY 14627
United States

Zhenhong Fan

New York University (NYU)

Bobst Library, E-resource Acquisitions
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New York, NY 10003-711
United States

Peter C. B. Phillips

University of Auckland Business School ( email )

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Auckland, 1010
New Zealand
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Yale University - Cowles Foundation ( email )

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New Haven, CT 06520-8281
United States
203-432-3695 (Phone)
203-432-5429 (Fax)

Singapore Management University - School of Economics

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178903
Singapore

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