Advanced Search
MyIDEAS: Login to save this article or follow this journal

The BDS Test as a Test for the Adequacy of a GARCH(1,1) Specification: A Monte Carlo Study

Contents:

Author Info

  • Guglielmo Maria Caporale
Registered author(s):

    Abstract

    In this study we examine the widely used Brock, Dechert, and Scheinkman (BDS) test when applied to the logarithm of the squared standardized residuals of an estimated GARCH(1,1) model as a test for the adequacy of this specification. We review the conditions derived by De Lima (1996; Econometric Reviews 15, 237--259) for the nuisance-parameter-free property to hold and address the issue of their necessity, using the flexible framework offered by the GARCH(1,1) model in terms of moment, memory, and time heterogeneity properties. By means of Monte Carlo simulations, we show that the BDS test statistic still approximates the standard null distribution even for mildly explosive processes that violate the majority of the conditions. Thus the test performs reasonably well, its empirical size being rather close to the nominal one. As a by-product of this study, we also shed light on the related issue of the consistency of the QML estimators of the conditional variance parameters under various parameter configurations and alternative distributional assumptions on the innovation process. Copyright 2005, Oxford University Press.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hdl.handle.net/10.1093/jjfinec/nbi010
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

    Volume (Year): 3 (2005)
    Issue (Month): 2 ()
    Pages: 282-309

    as in new window
    Handle: RePEc:oup:jfinec:v:3:y:2005:i:2:p:282-309

    Contact details of provider:
    Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
    Fax: 01865 267 985
    Email:
    Web page: http://jfec.oxfordjournals.org/
    More information through EDIRC

    Order Information:
    Web: http://www.oup.co.uk/journals

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Isao Ishida & Toshiaki Watanabe, 2009. "Modeling and Forecasting the Volatility of the Nikkei 225 Realized Volatility Using the ARFIMA-GARCH Model," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-608, CIRJE, Faculty of Economics, University of Tokyo.
    2. Jorge Pérez-Rodríguez & Julián Andrada-Félix, 2013. "Estimating critical values for testing the i.i.d. in standardized residuals from GARCH models in finite samples," Computational Statistics, Springer, Springer, vol. 28(2), pages 701-734, April.
    3. Borusyak, K., 2011. "Nonlinear Dynamics of the Russian Stock Market in Problems of Risk Management," Journal of the New Economic Association, New Economic Association, New Economic Association, issue 11, pages 85-105.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:3:y:2005:i:2:p:282-309. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.