Tests to Disentangle Breaks in Intercept from Slope in Linear Regression Models with Application to Management Performance in the Mutual Fund Industry

Jose Olmo and William Pouliot

Discussion Papers from Department of Economics, University of Birmingham

Abstract: This article introduces a U-statistic type process that is fashioned from a kernal which can depend on nuisance parameters. It is shown that this process can accommodate, in a straightforward manner, anti-symmetric kernels, which have proved useful for detecting changing patterns in the dynamics of time series, and weight functions. Weight functions have been shown to improve the power of test statistics employed to detect these changing patterns throughout the evaluation perios; early and late as well. Theory and related test statistics are developed here and applied to detection of structural breaks in linear regression models (LRM). This flexibility is exploited to develop tests to detect changes in intercept or slope in LRMs that are robust to changes in the rest of medal parameters. The statistics developed here are applied to detect changing patterns in mutual fund manager's stock selecting ability over the period 2001 to 2010.

Keywords: Change-Point tests; CUSUM test; Linear regression models; Stochastic processes; U-Statistics (search for similar items in EconPapers)
JEL-codes: C12 C22 C52 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-03
New Economics Papers: this item is included in nep-ecm and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:14-02

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