A Method for Detecting Structural Breaks and an Application to the Turkish Stock Market
METU Studies in Development, Vol. 27, No. 1-2, pp. 35-45, 2000
10 Pages Posted: 31 Jan 2009
Date Written: 2000
Abstract
We suggest a procedure for model update, based on detection of structural breaks at unknown change-points. The procedure makes use of the SupF test introduced by Andrews (1993). We apply this procedure for modelling the common stock index returns in the Istanbul Stock Exchange for the 11 year period of 1989 - 1999. The underlying model consists simply of a mean plus noise, with occasional jumps in the level of mean at unknown time instances. The problem is the detection of this jump and the corresponding model update. We find critical values for the SupF test statistic by using the Bootstrap method. A trading rule that uses the forecasts from the suggested procedure is observed to outperform the buy-and-hold strategy.
Keywords: structural change, sup F test, rolling Chow test, Bootstrap
JEL Classification: C12, C22, C52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Nicholas Barberis, Andrei Shleifer, ...
-
A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
By Harrison G. Hong and Jeremy C. Stein
-
By Louis K.c. Chan, Narasimhan Jegadeesh, ...
-
Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies
By Harrison G. Hong, Terence Lim, ...
-
Profitability of Momentum Strategies: An Evaluation of Alternative Explanations
-
Profitability of Momentum Strategies: an Evaluation of Alternative Explanations
-
When are Contrarian Profits Due to Stock Market Overreaction?
By Andrew W. Lo and A. Craig Mackinlay