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

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  • Hong, Yongmiao
  • Shehadeh, Ramsey D
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    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.

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    Bibliographic Info

    Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

    Volume (Year): 17 (1999)
    Issue (Month): 1 (January)
    Pages: 91-108

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    Handle: RePEc:bes:jnlbes:v:17:y:1999:i:1:p:91-108

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    Cited by:
    1. 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.
    2. Gabriele Fiorentini & Enrique Sentana, 2010. "Dynamic Specification Tests for Static Factor Models," Working Paper Series 04_10, The Rimini Centre for Economic Analysis.

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