CUSUM-Type testing for changing parameters in a spatial autoregressive model of stock returns

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Date

2011-09-07

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Abstract

The paper suggests a CUSUM-type test for time-varying parameters in a recently proposed spatial autoregressive model for stock returns and derives its asymptotic null distribution as well as local power properties. As can be seen from Euro Stoxx 50 returns, a combination of spatial modelling and change point tests allows for superior risk forecasts in portfolio management.

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Keywords

Brownian Bridge, Fluctuation test, GMM estimation, Spatial dependence, Stock returns

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