Detecting structural changes in large portfolios

Peter Posch, Daniel Ullmann () and Dominik Wied
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Daniel Ullmann: TU Dortmund University

Empirical Economics, 2019, vol. 56, issue 4, No 9, 1357 pages

Abstract: Abstract Model-free tests for constant parameters often fail to detect structural changes in high dimensions. In practice, this corresponds to a portfolio with many assets and a reasonable long time series. We reduce the dimensionality of the problem by looking at a compressed panel of time series obtained by cluster analysis and the principal components of the data. With this procedure, we can extend tests for constant correlation matrix from a sub-portfolio to whole indices, which we exemplify using a major stock index.

Keywords: Correlation; Structural change; Cluster analysis; Portfolio management (search for similar items in EconPapers)
JEL-codes: C12 C55 C58 G11 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00181-017-1392-5

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