Abstract
This study empirically examines the effects of structural breaks on equity return volatility persistence by using Chinese and Japanese equity index return data. Applying standard GARCH models and two kinds of structural break dummy variables, we derive the following findings. First, we reveal that for both Chinese and Japanese equity index returns, the values of GARCH parameters of standard GARCH models decline when the first structural break dummies are incorporated. Second, our analyses further clarify that for both Chinese and Japanese equity index returns, the values of GARCH parameters of standard GARCH models again decline when different kinds of structural break dummies are incorporated.
Highlights
In economics and finance, structural breaks are recently being much important, while well-known volatility persistence of equity returns is important in financial time-series modeling (e.g., Narayan et al [1]; Chen et al [2]; Chatzikonstanti and Venetis [3]; Tsuji [4] [5] [6])
This study empirically examines the effects of structural breaks on equity return volatility persistence by using Chinese and Japanese equity index return data
This study empirically examined the effects of structural breaks on equity return volatility persistence by using Chinese and Japanese equity index return data
Summary
Structural breaks are recently being much important, while well-known volatility persistence of equity returns is important in financial time-series modeling (e.g., Narayan et al [1]; Chen et al [2]; Chatzikonstanti and Venetis [3]; Tsuji [4] [5] [6]). 1) First, this study reveals that for both Chinese and Japanese equity index returns, the values of GARCH parameters of standard GARCH models decline when the first structural break dummies are incorporated. 2) Second, our analyses further clarify that for both Chinese and Japanese equity index returns, the values of GARCH parameters of standard GARCH models again decline when different kinds of structural break dummies are incorporated.
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