Structural Breaks in Panel Data: Large Number of Panels and Short Length Time Series

32 Pages Posted: 16 Mar 2017

See all articles by Jaromir Antoch

Jaromir Antoch

Charles University in Prague - Faculty of Mathematics and Physics

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Charles University in Prague; Academy of Sciences of the Czech Republic; Centre for Economic Policy Research (CEPR)

Lajos Horváth

University of Utah - Department of Mathematics

Marie Huaková

Charles University in Prague

Shixuan Wang

University of Reading - Department of Economics

Date Written: March 2017

Abstract

The detection of the (structural) break or so called change point problem has drawn increasing attention from both theoretical and applied economic and financial research over the last decade. A large part of the existing research concentrates on the detection and asymptotic properties of the change point problem for panels with a large time dimension T. In this article we study a different approach, i.e., we consider the asymptotic properties with respect to N (number of panel members) while keeping T fixed. This situation (N ? 8 but T being fixed and rather small) is typically related to large (firm-level) data containing financial information about an immerse number of firms/stocks across a limited number of years/quarters/months. We propose a general approach for testing for the break(s) in this setup, which also allows their detection. In particular, we show the asymptotic behavior of the test statistics, along with an alternative wild bootstrap procedure that could be used to generate the critical values of the test statistics. The theoretical approach is supplemented by numerous simulations and extended by an empirical illustration. In the practical application we demonstrate the testing procedure in the framework of the four factors CAPM model. In particular, we estimate breaks in monthly returns of the US mutual funds during the period January 2006 to February 2010 which covers the subprime crises.

Keywords: Change point problem, stationarity, panel data, bootstrap, four factor CAPM model, US mutual funds

JEL Classification: C10, C23, C33

Suggested Citation

Antoch, Jaromir and Hanousek, Jan and Horváth, Lajos and Huaková, Marie and Wang, Shixuan, Structural Breaks in Panel Data: Large Number of Panels and Short Length Time Series (March 2017). CEPR Discussion Paper No. DP11891. Available at SSRN: https://ssrn.com/abstract=2934203

Jaromir Antoch (Contact Author)

Charles University in Prague - Faculty of Mathematics and Physics ( email )

Sokolovska 83
Prague, 186 75
Czech Republic

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic
420 2 2400 5119 (Phone)
420 2 2421 1374 (Fax)

HOME PAGE: http://www.cerge-ei.cz

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Academy of Sciences of the Czech Republic ( email )

Narodni 3, 111 42
Praha 1, 117 20
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Lajos Horváth

University of Utah - Department of Mathematics ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States
801 581-8159 (Phone)

Marie Huaková

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Shixuan Wang

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom

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