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SHRINKAGE ESTIMATION OF REGRESSION MODELS WITH MULTIPLE STRUCTURAL CHANGES

Published online by Cambridge University Press:  23 June 2015

Junhui Qian  and
Liangjun Su
Junhui Qian
Affiliation:
Shanghai Jiao Tong University
Liangjun Su*
Affiliation:
Singapore Management University
*
*Address correspondence to Liangjun Su, School of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903; e-mail: ljsu@smu.edu.sg.
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Abstract

In this paper, we consider the problem of determining the number of structural changes in multiple linear regression models via group fused Lasso. We show that with probability tending to one, our method can correctly determine the unknown number of breaks, and the estimated break dates are sufficiently close to the true break dates. We obtain estimates of the regression coefficients via post Lasso and establish the asymptotic distributions of the estimates of both break ratios and regression coefficients. We also propose and validate a data-driven method to determine the tuning parameter. Monte Carlo simulations demonstrate that the proposed method works well in finite samples. We illustrate the use of our method with a predictive regression of the equity premium on fundamental information.

Type
ARTICLES
Information
Econometric Theory , Volume 32 , Issue 6 , December 2016 , pp. 1376 - 1433
Copyright
Copyright © Cambridge University Press 2015 

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