← Search

Stochastic Permanent Breaks

Robert F. Engle; Aaron Smith

University of California San Diego

The Review of Economics and Statistics 1999

This paper bridges the gap between processes where shocks are permanent and those with transitory shocks by formulating a process in which the long-run impact of each innovation is time-varying and stochastic. In the stochastic permanent breaks (STOPBREAK) process, frequent transitory shocks are supplemented by occasional permanent shifts. Consistency and asymptotic normality of quasi-maximum-likelihood estimates is established, and locally best hypothesis tests of the null of a random walk are developed. The model is applied to relative prices of pairs of stocks and significant test statistics result.

DOI
10.1162/003465399558382
Volume
81 (4)
Pages
553-574
Language
en
Export
BibTeX
Sources
openalex crossref