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on Econometric Time Series |
| By: | KUROZUMI, Eiji; YAMAMOTO, Yohei |
| Abstract: | This study proposes constructing a confidence set for the date of a one-time structural change using a point optimal test. Following Elliott and M鶴ler (2007), we first construct a test for the break date that maximizes the weighted average of the power function. The confidence set is then obtained by inverting the test statistic. We carefully choose the weights and show by Monte Carlo simulations that the confidence set based on our method has a relatively accurate coverage rate, while the length of our confidence set is significantly shorter than the lengths proposed in the literature. |
| Keywords: | coverage rate, break fraction, hypothesis test, average power |
| JEL: | C12 C22 |
| Date: | 2015–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:hit:econdp:2015-01&r=ets |
| By: | Audrino, Francesco; Camponovo, Lorenzo; Roth, Constantin |
| Abstract: | A (conservative) test is constructed to investigate the optimal lag structure for forecasting realized volatility dynamics. The testing procedure relies on the recent theoretical results that show the ability of the adaptive least absolute shrinkage and selection operator (adaptive lasso) to combine efficient parameter estimation, variable selection, and valid inference for time series processes. In an application to several constituents of the S&P 500 index it is shown that (i) the optimal significant lag structure is time-varying and subject to drastic regime shifts that seem to happen across assets simultaneously; (ii) in many cases the relevant information for prediction is included in the first 22 lags, corroborating previous results concerning the accuracy and the difficulty of outperforming out-of-sample the heterogeneous autoregressive (HAR) model; and (iii) some common features of the optimal lag structure can be identified across assets belonging to the same market segment or showing a similar beta with respect to the market index. |
| Keywords: | Realized volatility; Adaptive lasso; HAR model; Test for false positives; Lag structure |
| JEL: | C12 C58 C63 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2015:01&r=ets |