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40th IAEE International Conference
Interval Tests for Structural Breaks in the Dependence: Empirical Evidence of Oil and Gold Markets BingYue Liu Department of Statistics and Finance University of Science and Technology of China June 18-21, Singapore
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Interval Tests for Structural Breaks
Introduction Crude Oil Important commodity Large trading volume Low price Gold Important precious metal Hedge heaven Co-movement Positive Dynamic Guidance Investment portfolio Risk management
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Interval Tests for Structural Breaks
Literature Baffes (2007), Hammoudeh and Yuan (2008), Soytas et al. (2009), Sari et al. (2010), Narayan et al. (2010), Zhang and Wei (2010), Reboredo (2013) Method Static relationship Linear relationship Conclusion Short-term or long-term relationship Causal relationship But Market volatility Market mechanism change under extreme market shock Structural (Large) change in dependence
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Interval Tests for Structural Breaks
Contribution Apply TVCopula to analyze dependence of oil & gold Nonlinear Dynamic Small change in dependence Change point test to analyze dependence of oil & gold Large change in dependence But Extreme shocks last not long Hardly capture the dependent features in extreme risk period Propose change interval test Capture the dependent features in an extreme period Test the effect of extreme shocks on the co-movement across markets Empirical evidence of crude oil and gold markets
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Interval Tests for Structural Breaks
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Interval Tests for Structural Breaks
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Interval Tests for Structural Breaks
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Interval Tests for Structural Breaks
Methodology Change point test (Dias and Embrechts, 2009) Random vector U = (U1, U2), joint distribution Test Likelihood ratio statistic Note , then referring to Csörgő and Horváth (1997)
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Interval Tests for Structural Breaks
Methodology Change interval test Define parameter space Construct hypothesis test Null hypothesis HT11: No change point HT12: No change point or only one change point in k1 HT13: No change point or only one change point in k2
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Interval Tests for Structural Breaks
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Interval Tests for Structural Breaks
Empirical Analysis Oil & Gold: volatility clustering Oil: volatility asymmetry Oil & Gold: innovation symmetric fat-tailed distribution
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Interval Tests for Structural Breaks
Empirical Analysis Change point test can only check out one change point over the whole sample period.
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Interval Tests for Structural Breaks
Empirical Analysis Change interval period: 9/9/2008-4/23/2009
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Interval Tests for Structural Breaks
Empirical Analysis No change point in the pre-crisis period.
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Interval Tests for Structural Breaks
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Interval Tests for Structural Breaks
Empirical Analysis Change interval 9/10/2008-4/23/2009 Change point 4/27/2010 10/9/2013 Various period Market boom Financial crisis Rapid recovery Market reform
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Interval Tests for Structural Breaks
Conclusion Theory study Propose a new change interval test Empirical study Commodity properties are larger in economic boom period, and financial properties are larger in extreme risk period Exogenous economic shocks and the changes of internal mechanism may lead to structural changes Other Application Risk management Financial contagion
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Thank you for your attention. Questions and comments are welcome.
BingYue Liu Department of Statistics and Finance University of Science and Technology of China
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