A new fluctuation test for constant variances with applications to finance

• DOI: 10.1007/s00184-011-0371-7
• Publication Date: 2011-11-05T09:17:05Z
• Authors: Dominik Wied; Matthias Arnold; Nicolai Bissantz; Daniel Ziggel
• Keywords: 0101 mathematics; 01 natural sciences

We present a test to determine whether variances of time series are constant over time. The test statistic is a suitably standardized maximum of cumulative first and second moments. We apply the test to time series of various assets and find that the test performs well in applications. Moreover, we propose a portfolio strategy based on our test which hedges against potential financial crises and show that it works in practice.