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

See all articles by Erdem Basci

Erdem Basci

Bilkent University - Department of Economics

Sidika Basci

ESTIM Forecasting Center

Asad Zaman

Al-Nafi; Akhuwat University

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

Basci, Erdem and Basci, Sidika and Zaman, Asad, A Method for Detecting Structural Breaks and an Application to the Turkish Stock Market (2000). METU Studies in Development, Vol. 27, No. 1-2, pp. 35-45, 2000, Available at SSRN: https://ssrn.com/abstract=1335733

Erdem Basci

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey

Sidika Basci

ESTIM Forecasting Center ( email )

Sairler sok. 32/C
Gaziosmanpasa 06700
Turkey

Asad Zaman (Contact Author)

Al-Nafi ( email )

64 Fullerton Crecent
Markham, Ontario L35 3G5
Canada

Akhuwat University ( email )

Lalyani
Ferozepur Road
Kasur, Punjab 55110
Pakistan
55110 (Fax)

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