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Selected Techniques Of Detecting Structural Breaks In Financial Volatility

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  • Bartosz Stawiarski

    (Cracow University of Technology)

Abstract

We investigate several promising algorithms, proposed in literature, devised to detect sudden changes (structural breaks) in the volatility of financial time series. Comparative study of three techniques: ICSS, NPCPM and Cheng’s algorithm is carried out via numerical simulation in the case of simulated T-GARCH models and two real series, namely German and US stock indices. Simulations show that the NPCPM algorithm is superior to ICSS because is not over-sensitive either to heavy tails of market returns or to their serial dependence. Some signals generated by ICSS are falsely classified as structural breaks in volatility, while Cheng’s technique works well only when a single break occurs.

Suggested Citation

  • Bartosz Stawiarski, 2015. "Selected Techniques Of Detecting Structural Breaks In Financial Volatility," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 11(1), pages 32-43, August.
    • Handle: RePEc:rze:efinan:v:11:y:2015:i:1:p:32-43
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    More about this item

    Keywords

    volatility; structural breaks; financial time series; logarithmic returns; Threshold-GARCH model Least Squares Method;
    All these keywords.

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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