Testing for structural changes in large portfolios
Posch, Peter N.
info:eu-repo/classification/ddc/310 | info:eu-repo/classification/ddc/330 | info:eu-repo/classification/ddc/620 | correlation | portfolio management | cluster analysis | structural change
Model free tests for constant parameters often fail to detect structural changes in high
dimensions. In practice, this corresponds to a portfolio with many assets and a reasonable
long time series. We reduce the dimensionality of the problem by looking a compressed
panel of time series obtained by cluster analysis and the principal components of the data.
Using our methodology we are able to extend a test for a constant correlation matrix from a
sub portfolio to whole indices and exemplify the procedure with the EuroStoxx index.