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Recursive predictive tests for structural change of long-memory ARFIMA processes with unknown break points

Cindy Shin-huei Wang () and Chrysovalantis Vasilakis

Economics Letters, 2013, vol. 118, issue 2, 389-392

Abstract: This paper considers the theoretical justifications of Lütkpohl’s (1988) test statistics when the data-generating process is relaxed to be a stationary ARFIMA process. Under suitable regularity conditions, we prove the applicability of Lütkpohl’s (1988) method to the stationary ARFIMA (p, d, q) process with d∈ (−0.5, 0.5). The practical advantages of our results imply that the potential one or more change points of an ARFIMA process can be detected via recursive predictive tests based on AR regression, even though the exact order of the ARFIMA (p, d, q) is unknown. The spurious break considered in Kuan and Hsu (1998) can also be resolved by Lütkpohl’s (1988) predictive tests, and the simulations conducted in this paper confirm our theoretical results.

Keywords: Structural breaks; Predictive tests; Long memory (search for similar items in EconPapers)
JEL-codes: C22 C53 C01 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:389-392