All Title Author
Keywords Abstract

On Detecting Sudden Changes in the Unconditional Volatility of a Time Series

DOI: 10.4236/tel.2016.62028, PP. 256-261

Keywords: AIT-ICSS Algorithm, Long Memory, Sudden Change, Volatility

Full-Text   Cite this paper   Add to My Lib


The present study highlights the drawback of using Sanso, Arago and Carrion’s (2004) AIT-ICSS algorithm in detecting sudden changes in the unconditional volatility when long memory is present in volatility. Simulation experiments show that the AIT-ICSS test is severely oversized and exhibits low power when long memory is present in volatility.


[1]  Poon, S.H. and Granger, C.W.J. (2003) Forecasting Volatility in Financial Markets: A Review. Journal of Economic Literature, 41, 478-539.
[2]  Ross, S.A. (1989) Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy. Journal of Finance, 44, 1-7.
[3]  Inclán, C. and Tiao, G.C. (1994) Use of Cumulative Sums of Squares for Retrospective Detection of Changes of Variance. Journal of the American Statistical Association, 89, 913-923.
[4]  Sanso, A., Arago, V. and Carrion, J.L. (2004) Testing for Change in the Unconditional Variance of Financial Time Series. Revista de Economiá Financiera, 4, 32-53.
[5]  Malik, F., Ewing, B.T. and Payne, J.E. (2005) Measuring Volatility Persistence in the Presence of Sudden Changes in the Variance of Canadian Stock Returns. Canadian Journal of Economics, 38, 1037-1056.
[6]  Hammoudeh, S. and Li, H. (2008) Sudden Changes in Volatility in Emerging Markets: The Case of Gulf Arab Stock Markets. International Review of Financial Analysis, 17, 47-63.
[7]  Wang, P. and Moore, T. (2009) Sudden Changes in Volatility: The Case of Five Central European Stock Markets. Journal of International Financial Markets, Institutions and Money, 19, 33-46.
[8]  Newey, W.K. and West, K.D. (1994) Automatic Lag Selection in Covariance Matrix Estimation. Review of Economic Studies, 61, 631-654.
[9]  Schwert, G.W. (1989) Why Does Stock Market Volatility Change over Time? The Journal of Finance, 44, 1115-1153.


comments powered by Disqus