Test for Breaks in the Conditional Co-Movements of Asset Returns

Elena Andreou and Eric Ghysels ()

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: We propose procedures designed to uncover structural breaks in the co-movements of financial markets. A reduced form approach is introduced that can be considered as a two stage method for reducing dimensionality of multivariate heteroskedastic conditional volatility models through marginalization. The main advantage is that one can use returns normalized by volatility filters that are purely data-driven and construct general conditional covariance dynamic specifications. The main thrust of our procedure is to examine change-points in the co-movements of normalized returns. We document, using a ten year period of two representative high frequency FX series, that regression models with non-Gaussian errors describe adequately their co-movements. Change-points are detected in the conditional covariance of the DM/US$ and YN/US$ normalized returns over the decade 1986-1996.

Keywords: change-point tests; conditional covariance; high-frequency financial data; multivariate GARCH models (search for similar items in EconPapers)
Pages: 41 pages
Date: 2003-03
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
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Citations: View citations in EconPapers (4)

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Working Paper: Tests for Breaks in the Conditional Co-movements of Asset Returns (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:3-2003

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