Detection of a structural break in intraday volatility pattern

Kokoszka, P., Kutta, T., Mohammadi, N., Wang, H. and Wang, S. ORCID: https://orcid.org/0000-0003-2113-5521 (2024) Detection of a structural break in intraday volatility pattern. Stochastic Processes and their Applications. ISSN 1879-209X doi: 10.1016/j.spa.2024.104426

Abstract/Summary

We develop theory leading to testing procedures for the presence of a change point in the intraday volatility pattern. The new theory is developed in the framework of Functional Data Analysis. It is based on a model akin to the stochastic volatility model for scalar point-to-point returns. In our context, we study intraday curves, one curve per trading day. After postulating a suitable model for such functional data, we present three tests focusing, respectively, on changes in the shape, the magnitude and arbitrary changes in the sequences of the curves of interest. We justify the respective procedures by showing that they have asymptotically correct size and by deriving consistency rates for all tests. These rates involve the sample size (the number of trading days) and the grid size (the number of observations per day). We also derive the corresponding change point estimators and their consistency rates. All procedures are additionally validated by a simulation study and an application to US stocks.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/116941
Identification Number/DOI	10.1016/j.spa.2024.104426
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Elsevier
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