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Testing for structural breaks in factor copula models

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  • Manner, Hans
  • Stark, Florian
  • Wied, Dominik

Abstract

We propose new fluctuation tests for detecting structural breaks in factor copula models and analyse the behaviour under the null hypothesis of no change. In the model, the joint copula is given by the copula of random variables which arise from a factor model. This is particularly useful for analysing data with high dimensions. Parameters are estimated with the simulated method of moments (SMM). The discontinuity of the SMM objective function complicates the derivation of a functional limit theorem for the parameters. We analyse the behaviour of the tests in Monte Carlo simulations and a real data application. It turns out that our test is more powerful than nonparametric tests for copula constancy in high dimensions.

Suggested Citation

  • Manner, Hans & Stark, Florian & Wied, Dominik, 2019. "Testing for structural breaks in factor copula models," Journal of Econometrics, Elsevier, vol. 208(2), pages 324-345.
    • Handle: RePEc:eee:econom:v:208:y:2019:i:2:p:324-345
    DOI: 10.1016/j.jeconom.2018.10.001
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    Cited by:

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    3. Cai, Guixin & Zhang, Hao & Chen, Ziyue, 2019. "Comovement between commodity sectors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 1247-1258.
    4. Mayer, Alexander & Wied, Dominik, 2023. "Estimation and inference in factor copula models with exogenous covariates," Journal of Econometrics, Elsevier, vol. 235(2), pages 1500-1521.
    5. Florian Stark & Sven Otto, 2020. "Testing and Dating Structural Changes in Copula-based Dependence Measures," Papers 2011.05036, arXiv.org.
    6. Manner, Hans & Rodríguez, Gabriel & Stöckler, Florian, 2024. "A changepoint analysis of exchange rate and commodity price risks for Latin American stock markets," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1385-1403.
    7. Tim Kutzker & Florian Stark & Dominik Wied, 2021. "Testing for relevant dependence change in financial data: a CUSUM copula approach," Empirical Economics, Springer, vol. 60(4), pages 1875-1894, April.
    8. Li, Zhenghui & Chen, Liming & Dong, Hao, 2021. "What are bitcoin market reactions to its-related events?," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 1-10.

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    More about this item

    Keywords

    Factor copula model; Fluctuation test; Simulated method of moments;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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