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Power monotonicity in detecting volatility levels change

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  • Xu, Ke-Li
Abstract
We show that the CUSUM and LM tests for structural change in the volatility process enjoy monotonic power. The framework is general including many recently proposed non-stationary GARCH-type models. The result is in contrast to the well-known issue of non-monotonic power for the CUSUM-based tests for changing mean. Simulations and an empirical example provide further support.

Suggested Citation

  • Xu, Ke-Li, 2013. "Power monotonicity in detecting volatility levels change," Economics Letters, Elsevier, vol. 121(1), pages 64-69.
    • Handle: RePEc:eee:ecolet:v:121:y:2013:i:1:p:64-69
    DOI: 10.1016/j.econlet.2013.06.030
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    Cited by:

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    2. Minya Xu & Ping-Shou Zhong & Wei Wang, 2016. "Detecting Variance Change-Points for Blocked Time Series and Dependent Panel Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(2), pages 213-226, April.

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    More about this item

    Keywords

    CUSUM test; IGARCH effect; LM test; Non-monotonic power; Structural change; Volatility models;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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