A new method for detecting regime switches between different probability distributions in financial time series is shown. In the proposed method, time series observations are divided into several segments, and a Gaussian model or a Cauchy model is fitted to each segment. The goodness of fit of...

This paper investigates two problems which a practitioner of Johansen's cointegration analysis faces: the pre-testing problem and the inconsistency problem. Johansen's cointegration analysis requires hypothesis testing at four stages, and thus Type I errors accumulate. In addition, it often...