Testing of Binary Regime Switching Models using Squeeze Duration Analysis

Milan Kumar Das and Anindya Goswami

Papers from arXiv.org

Abstract: We have developed a statistical technique to test the model assumption of binary regime switching extension of the geometric Brownian motion (GBM) model by proposing a new discriminating statistics. Given a time series data, we have identified an admissible class of the regime switching candidate models for the statistical inference. By performing several systematic experiments, we have successfully shown that the sampling distribution of the test statistics differs drastically, if the model assumption changes from GBM to Markov modulated GBM, or to semi-Markov modulated GBM. Furthermore, we have implemented this statistics for testing the regime switching hypothesis with Indian sectoral indices.

Date: 2018-07, Revised 2018-08
New Economics Papers: this item is included in nep-ecm and nep-ets
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Published in Int. J. Financ. Eng. 6 (2019), no. 1, 1950006 (20 pages)

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