Nonparametric method of structural break detection in stochastic time series regression model

Abstract

We propose a nonparametric algorithm to detect structural breaks in the conditional mean and/or variance of a time series. Our method does not assume any specific parametric form for the dependence structure of the regressor, the time series model, or the distribution of the model noise. This flexibility allows our algorithm to be applicable to a wide range of time series structures commonly encountered in financial econometrics. The effectiveness of the proposed algorithm is validated through an extensive simulation study and a real data application in detecting structural breaks in the mean and volatility of Bitcoin returns. The algorithm's ability to identify structural breaks in the data highlights its practical utility in econometric analysis and financial modeling.