Gundersen, Kristian and Bacri, Timothee and Bulla, Jan and Holleland, Sondre and Maruotti, Antonello and Stove, Bard (2024) Testing for time-varying nonlinear dependence structures: Regime-switching and local Gaussian correlation. SCANDINAVIAN JOURNAL OF STATISTICS, 51 (3). pp. 1012-1060. ISSN 0303-6898, 1467-9469
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This paper examines nonlinear and time-varying dependence structures between a pair of stochastic variables, using a novel approach which combines regime-switching models and local Gaussian correlation (LGC). We propose an LGC-based bootstrap test for examining whether the dependence structure between two variables is equal across different regimes. We examine this test in a Monte Carlo study, where it shows good level and power properties. We argue that this approach is more intuitive than competing approaches, typically combining regime-switching models with copula theory. Furthermore, LGC is a semi-parametric approach, hence avoids any parametric specification of the dependence structure. We illustrate our approach using financial returns from the US-UK stock markets and the US stock and government bond markets, and provide detailed insight into their dependence structures.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | HIDDEN MARKOV; PROBABILISTIC FUNCTIONS; MAXIMUM-LIKELIHOOD; STYLIZED FACTS; STOCK; RETURNS; COPULAS; MODELS; SERIES; MAXIMIZATION; dependence; financial time series; hidden Markov models; local Gaussian correlation |
| Subjects: | 600 Technology > 610 Medical sciences Medicine |
| Divisions: | Medicine > Lehrstuhl für Psychiatrie und Psychotherapie Medicine > Institut für Epidemiologie und Präventivmedizin |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 10 Dec 2025 06:45 |
| Last Modified: | 10 Dec 2025 06:45 |
| URI: | https://pred.uni-regensburg.de/id/eprint/64787 |
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