European Financial and Accounting Journal
European Financial and Accounting Journal
European Financial and Accounting Journal
Faculty of Finance and Accounting, University of Economics, Prague

European Financial and Accounting Journal 2016/3

Structural Distress Index: Structural Break Analysis of the Czech and Polish Stock Markets


[full text (PDF)]

Michael Princ

The estimation of multiple structural break models is usually associated with identification of spurious break points, which are identified by universal algorithms. This leads to overvaluation of structural distress in financial markets represented by data series. The paper is focused on an estimation of the new index, which incorporates results of Student, Bartlett, GLR, Mann-Whitney, Mood, Lepage, Kolmogorov-Smirnov and finally Cramer-von-Mises tests statistics together. The new measure is named Structural Distress Index and evaluates a probability of structural break occurrence based on estimations of proposed models. SDI values show that Czech and Polish stock markets went through more instable period in 1990s than at the beginning of the global financial crisis in 2007. SDI measure is straightforward and can be easily explained, the highest values of SDI can identify the most important break points of the research period, which starts in year 1993 and ends in year 2014. Universality of SDI offers its further extension and application to further research of financial markets.

Keywords: Aggregation, Central Europe, Stability, Stock markets, Structural break analysis

JEL Classification: C13, C51, G14, G15


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