A monitoring procedure for detecting structural breaks in factor copula models

Manner Hans (), Stark Florian () and Dominik Wied
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Manner Hans: University of Graz, Institute of Economics, Graz, Austria
Stark Florian: University of Cologne, Institute for Econometrics and Statistics, Albertus-Magnus-Platz, 50923, Cologne, Germany

Studies in Nonlinear Dynamics & Econometrics, 2021, vol. 25, issue 4, 171-192

Abstract: We propose a new monitoring procedure based on moving sums (MOSUM) for detecting single or multiple structural breaks in factor copula models. The test compares parameter estimates from a rolling window to those from a historical data set and analyzes the behavior under the null hypothesis of no parameter change. The case of multiple breaks is also treated. In the model, the joint copula is given by the copula of random variables which arise from a factor model. This is particularly useful for analyzing high dimensional data. Parameters are estimated with the simulated method of moments (SMM). We analyze the behavior of the monitoring procedure in Monte Carlo simulations and a real data application. We consider an online procedure for predicting the day-ahead Value-at-risk based on the suggested monitoring procedure.

Keywords: factor copula model; monitoring procedure; simulated method of moments; value at risk (search for similar items in EconPapers)
JEL-codes: C12 C32 C58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/snde-2019-0081

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