Power monotonicity in detecting volatility levels change

Ke-Li Xu

Economics Letters, 2013, vol. 121, issue 1, 64-69

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.

Keywords: CUSUM test; IGARCH effect; LM test; Non-monotonic power; Structural change; Volatility models (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:121:y:2013:i:1:p:64-69

DOI: 10.1016/j.econlet.2013.06.030

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