Regime shift model by three types of distribution considering a heavy tail and dependence

Jungwoo Kim and Joocheol Kim
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Jungwoo Kim: Yonsei University
Joocheol Kim: Yonsei University

No 2015rwp-86, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: I adopt a regime shift model to investigate a shift of distribution of each regime during a time series data. Unlike previous studies, I applied three types of distribution to use a regime shift model, i.e., normal, GEV and stable distribution, which allows me to consider a heavy tail regime in the model. From some theoretical basis and empirical results, I find that the regime shift model in stable distribution is best appropriate. I also find that tail index of the innovation and dependence measure move together, implying dependence among a consecutive data may lead extreme event and vice versa.

Keywords: regime shift model; tail index; dependence measure; extreme event (search for similar items in EconPapers)
Pages: 15pages
Date: 2015-11
New Economics Papers: this item is included in nep-ecm and nep-ets
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