Journal
STATISTICAL METHODS AND APPLICATIONS
Volume 30, Issue 3, Pages 1053-1078Publisher
SPRINGER HEIDELBERG
DOI: 10.1007/s10260-020-00549-z
Keywords
Breakpoints; Structural change; Skew Student-t distribution; Segmented model; Markov chain Monte Carlo methods; Deviance information criterion (DIC)
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Funding
- Ministry of Science and Technology, Taiwan [MOST107-2118-M-035-005-MY2]
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This research introduces a method based on segmented autoregressive models and GARCH errors, utilizing skew Student-t distribution to detect structural changes in financial time series. By employing Bayesian methods and deviance information criterion, the number and locations of structural change points can be accurately determined, achieving more efficient capturing of market volatility.
Structural change in any time series is practically unavoidable, and thus correctly detecting breakpoints plays a pivotal role in statistical modelling. This research considers segmented autoregressive models with exogenous variables and asymmetric GARCH errors, GJR-GARCH and exponential-GARCH specifications, which utilize the leverage phenomenon to demonstrate asymmetry in response to positive and negative shocks. The proposed models incorporate skew Student-t distribution and prove the advantages of the fat-tailed skew Student-t distribution versus other distributions when structural changes appear in financial time series. We employ Bayesian Markov Chain Monte Carlo methods in order to make inferences about the locations of structural change points and model parameters and utilize deviance information criterion to determine the optimal number of breakpoints via a sequential approach. Our models can accurately detect the number and locations of structural change points in simulation studies. For real data analysis, we examine the impacts of daily gold returns and VIX on S&P 500 returns during 2007-2019. The proposed methods are able to integrate structural changes through the model parameters and to capture the variability of a financial market more efficiently.
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