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Power monotonicity in detecting volatility levels change
Authors:Ke-Li Xu
Affiliation:Department of Economics, Texas A&M University, 3063 Allen, 4228 TAMU, College Station, TX 77843-4228, USA
Abstract:We show that the CUSUM and LM tests for structural change in the volatility process enjoy monotonic power. The framework is general including many recently proposed non-stationary GARCH-type models. The result is in contrast to the well-known issue of non-monotonic power for the CUSUM-based tests for changing mean. Simulations and an empirical example provide further support.
Keywords:C12   C22
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