CUSUM-Type testing for changing parameters in a spatial autoregressive model of stock returns

The paper suggests a CUSUM-type test for time-varying parameters in a recently proposed spatial autoregressive model for stock returns and derives its asymptotic null distribution as well as local power properties. As can be seen from Euro Stoxx 50 returns, a combination of spatial modelling and change point tests allows for superior risk forecasts in portfolio management.
Discussion Paper / SFB 823;30/2011