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A New Test for ARCH Effects and Its Finite-Sample Performance

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  • Hong, Yongmiao
  • Shehadeh, Ramsey D

Abstract

The authors propose a test for autoregressive conditional heteroscedasticity based on a weighted sum of the squared sample autocorrelations of squared residuals from a regression, typically with greater weight given to lower-order lags. The tests of R. F. Engle (1982), G. E. P. Box and D. A. Pierce (1970), and G. M. Ljung and G. E. P. Box (1978), are equivalent to the test with equal weighting. The authors' test does not require formulation of an alternative and permits choice of the lag number via data-driven methods. Simulation studies show that the new test performs reasonably well in finite samples especially with greater weight on lower-order lags. The authors apply the test in two empirical examples.

Suggested Citation

  • Hong, Yongmiao & Shehadeh, Ramsey D, 1999. "A New Test for ARCH Effects and Its Finite-Sample Performance," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 91-108, January.
    • Handle: RePEc:bes:jnlbes:v:17:y:1999:i:1:p:91-108
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    Citations

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    Cited by:

    1. Dufour, Jean-Marie & Khalaf, Lynda & Bernard, Jean-Thomas & Genest, Ian, 2004. "Simulation-based finite-sample tests for heteroskedasticity and ARCH effects," Journal of Econometrics, Elsevier, vol. 122(2), pages 317-347, October.
    2. Lumsdaine, Robin L. & Ng, Serena, 1999. "Testing for ARCH in the presence of a possibly misspecified conditional mean," Journal of Econometrics, Elsevier, vol. 93(2), pages 257-279, December.
    3. Fiorentini, Gabriele & Sentana, Enrique, 2021. "New testing approaches for mean–variance predictability," Journal of Econometrics, Elsevier, vol. 222(1), pages 516-538.
    4. Grossi, Luigi & Laurini, Fabrizio, 2009. "A robust forward weighted Lagrange multiplier test for conditional heteroscedasticity," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2251-2263, April.
    5. Duchesne, Pierre, 2004. "On robust testing for conditional heteroscedasticity in time series models," Computational Statistics & Data Analysis, Elsevier, vol. 46(2), pages 227-256, June.
    6. Par Sjolander, 2010. "A stationary unbiased finite sample ARCH-LM test procedure," Applied Economics, Taylor & Francis Journals, vol. 43(8), pages 1019-1033.
    7. Tsvetomir Tsvetkov & Sonya Georgieva, 2022. "Inflation, Inflation Instability and Nominal Uncertainty in Bulgarian Economy," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 8, pages 41-64.
    8. Gabriele Fiorentini & Enrique Sentana, 2009. "Dynamic Specification Tests for Static Factor Models," Working Papers wp2009_0912, CEMFI.
    9. Y. K. Tse, 2002. "Residual-based diagnostics for conditional heteroscedasticity models," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 358-374, June.
    10. Yoon-Jin Lee & Yongmiao Hong, 2004. "Specification Testing for Multivariate Time Series Volatility Models," Econometric Society 2004 Far Eastern Meetings 696, Econometric Society.
    11. Duchesne, Pierre, 2006. "Testing for multivariate autoregressive conditional heteroskedasticity using wavelets," Computational Statistics & Data Analysis, Elsevier, vol. 51(4), pages 2142-2163, December.
    12. Seonjin Kim, 2015. "Hypothesis Testing For Arch Models: A Multiple Quantile Regressions Approach," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(1), pages 26-38, January.
    13. Jin Lee, 2000. "One-Sided Testing for ARCH Effect Using Wavelets," Econometric Society World Congress 2000 Contributed Papers 1214, Econometric Society.

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