We develop a new test for threshold-type regime changes in the risk exposures in portfolios with a large number of financial assets whose returns exhibit an approximate factor structure. Unlike existing procedures to detect discrete shifts in factor models, our test is robust to regime-specific...

This paper proposes a test for linearity against exponential smooth transition models with endogenous right-hand-side variables: to the very best of our knowledge, this class of models is new to the literature. By Monte Carlo analysis the test is shown to have good finite sample properties