Detecting Multiple Breaks in Financial Market Volatility Dynamics

35 Pages Posted: 12 Jun 2002  

Elena Andreou

University of Cyprus - Department of Economics

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: May 2, 2002

Abstract

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.

Keywords: change-point, break dates, ARCH, high-frequency data

JEL Classification: G10, C15, C13

Suggested Citation

Andreou, Elena and Ghysels, Eric, Detecting Multiple Breaks in Financial Market Volatility Dynamics (May 2, 2002). Available at SSRN: https://ssrn.com/abstract=313639 or http://dx.doi.org/10.2139/ssrn.313639

Elena Andreou (Contact Author)

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
+357 2 892449 (Phone)
+357 2 892432 (Fax)

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

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