1. 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

2. 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

3. 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

4. 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

5. Interval Tests for Structural Breaks

6. Interval Tests for Structural Breaks

7. Interval Tests for Structural Breaks

8. 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)

9. 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

10. Interval Tests for Structural Breaks

11. Interval Tests for Structural Breaks
Empirical Analysis
Oil & Gold: volatility clustering
Oil: volatility asymmetry
Oil & Gold: innovation symmetric fat-tailed distribution

12. Interval Tests for Structural Breaks
Empirical Analysis
Change point test can only check out one change point over the whole sample period.

13. Interval Tests for Structural Breaks
Empirical Analysis
Change interval period: 9/9/2008-4/23/2009

14. Interval Tests for Structural Breaks
Empirical Analysis
No change point in the pre-crisis period.

16. Interval Tests for Structural Breaks

17. 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

18. 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

19. Thank you for your attention. Questions and comments are welcome.
BingYue Liu
Department of Statistics and Finance
University of Science and Technology of China