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Testing for Structural Change of Predictive Regression Model to Threshold Predictive Regression Model

Author

Listed:
  • Fukang Zhu

    (School of Mathematics, Jilin University, Changchun, Jilin 130012, China)

  • Mengya Liu

    (School of Mathematics, Jilin University, Changchun, Jilin 130012, China)

  • Shiqing Ling

    (Department of Mathematics, Hong Kong University of Science and Technology, Hong Kong, China)

  • Zongwu Cai

    (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA)

Abstract

This paper investigates two test statistics for structural changes and thresh- olds in predictive regression models. The generalized likelihood ratio (GLR) test is proposed for the stationary predictor and the generalized F test is suggested for the unit root predictor. Under the null hypothesis of no structural change and threshold, it is shown that the GLR test statistic converges to a function of a centered Gaussian process, and the generalized F test statistic converges to a function of Brownian motions. A Bootstrap method is proposed to obtain the critical values of test statistics. Simulation studies and a real example are given to assess the performances of the tests.

Suggested Citation

  • Fukang Zhu & Mengya Liu & Shiqing Ling & Zongwu Cai, 2020. "Testing for Structural Change of Predictive Regression Model to Threshold Predictive Regression Model," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202021, University of Kansas, Department of Economics, revised Dec 2020.
    • Handle: RePEc:kan:wpaper:202021
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    File URL: http://www2.ku.edu/~kuwpaper/2020Papers/202021.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bootstrap method; Generalized F-test; Generalized likelihood ratio test; Predictive regression; Structural change; Threshold model.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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