Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/29598
Authors: 
Fischer, Matthias J.
Year of Publication: 
2006
Series/Report no.: 
Diskussionspapiere // Friedrich-Alexander-Universität Erlangen-Nürnberg, Lehrstuhl für Statistik und Ökonometrie 74/2006
Abstract: 
A new test for constant correlation is proposed. The TC-test is derived as Lagrange multiplier (LM) test. Whereas most of the traditional tests (e.g. Jennrich, 1970, Tang, 1995 and Goetzmann, Li & Rouwenhorst, 2005) specify the unknown correlations as piecewise constant, our model-setup for the correlation coefficient is based on trigonometric functions. The simulation results demonstrate that the TC-test guarantees correct empirical size, is powerful against many alternatives and able to detect structural breaks in correlations. Finally, application of the TC-test to foreign exchange rate data over the period of 15 years is given.
Document Type: 
Working Paper

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