Abstract
Monitoring statistics for structural changes in systems of cointegrating relationships are proposed. The approach is based on parameter estimation over a calibration period. In case of homogenous systems and cross-sectional independence the pooled fully modified OLS estimator takes into account the effects of error serial correlation and regressor endogeneity. Cross-sectional dependence is allowed by using the pooled fully modified GLS estimator for homogenous systems and the fully modified SUR estimator for inhomogenous systems. The detectors show decent behaviour under the null hypothesis with controlled rejection probabilities and power against two alternatives for different data generating processes. An empirical application investigates deviations from the arbitrage parity condition for exchange rate triplets including Bitcoin. The procedures detect breakpoints in May to August 2014 and in January to May 2015 indicating an instability in arbitrage parities. Following this, a promising portfolio trading strategy based on the breakdates is constructed.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
