ECONOMETRICS OF FINANCIAL MARKETS Econometrics of Financial Markets



Econometrics of Financial Markets

(a)

Test for a Structural Break

Structural breaks can occur in time series data or cross sectional data, when there is a sudden change in the relationship being examined. Examples include sudden policy changes such as a change in government or sudden move in asset prices or serious international disaster such as a civil war. We then need to decide whether 2 separate regression lines are more efficient than a single regression.

The final stage of the Chow Test is to compare the test statistic with the critical value from ...