Was there ever a shift: Empirical analysis of structural-shift tests for return volatility

Andreï Kostyrka and Dmitry Malakhov ()
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Dmitry Malakhov: National Research University Higher School of Economics, Moscow, Russian Federation

Applied Econometrics, 2021, vol. 61, 110-139

Abstract: In this article, two popular tests for structural breaks are considered for return volatilities: the ICSS algorithm employing the AIT test, and the least-squares (LS) estimator. We show that the AIT test is sensitive to many features of the time series, and the use of asymptotic critical values is not always justified. The LS method was found to detect breaks more accurately, especially if there are many, in comparative simulations. Real data analysis revealed that LS estimation yields results in better accordance with general economic intuition, although its results are somewhat sensitive to the sample length. In general, we recommend the LS estimator for practical purposes.

Keywords: structural breaks; volatility; GARCH (search for similar items in EconPapers)
JEL-codes: C12 C22 C58 (search for similar items in EconPapers)
Date: 2021
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