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A test for multivariate ARCH effects

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  • R. Scott Hacker
  • Abdulnasser Hatemi-J

Abstract

This paper extends Engle's LM test for ARCH affects to multivariate cases. The size and power properties of this multivariate test for ARCH effects in VAR models are investigated based on asymptotic and bootstrap distributions. Using the asymptotic distribution, deviations of actual size from nominal size do not appear to be very excessive. Nevertheless, there is a tendency for the actual size to overreject the null hypothesis when the nominal size is 1% and underreject the null when the nominal size is 5% or 10%. It is found that using a bootstrap distribution for the multivariate LM test is generally superior in achieving the appropriate size to using the asymptotic distribution when (1) the nominal size is 5%; (2) the sample size is small (40 observations) and/or the VAR system is stable. With a small sample, the power of the test using the bootstrap distribution also appears better at the 5% nominal size.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 7 ()
Pages: 411-417

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:7:p:411-417

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References

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  1. A. Hatemi-J, 2003. "A new method to choose optimal lag order in stable and unstable VAR models," Applied Economics Letters, Taylor and Francis Journals, vol. 10(3), pages 135-137.
  2. Hatemi-J, Abdulnasser, 2004. "Multivariate tests for autocorrelation in the stable and unstable VAR models," Economic Modelling, Elsevier, vol. 21(4), pages 661-683, July.
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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Cited by:
  1. Scott Hacker & Abdulnasser Hatemi-J, 2012. "A bootstrap test for causality with endogenous lag length choice: theory and application in finance," Journal of Economic Studies, Emerald Group Publishing, vol. 39(2), pages 144-160, May.
  2. Abdulnasser Hatemi-J & Eduardo Roca, 2005. "Exchange rates and stock prices interaction during good and bad times: evidence from the ASEAN4 countries," Applied Financial Economics, Taylor and Francis Journals, vol. 15(8), pages 539-546.
  3. Hatemi-J, Abdulnasser & Roca, Eduardo, 2006. "A re-examination of international portfolio diversification based on evidence from leveraged bootstrap methods," Economic Modelling, Elsevier, vol. 23(6), pages 993-1007, December.
  4. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2012. "Purchasing Power Parity between the UK and the Euro Area," Working papers 2012-46, University of Connecticut, Department of Economics.
  5. R. Scott Hacker & Abdulnasser Hatemi-J, 2006. "Tests for causality between integrated variables using asymptotic and bootstrap distributions: theory and application," Applied Economics, Taylor and Francis Journals, vol. 38(13), pages 1489-1500.
  6. Lokman Gunduz & Abdulnasser Hatemi-J, 2005. "Is the tourism-led growth hypothesis valid for Turkey?," Applied Economics Letters, Taylor and Francis Journals, vol. 12(8), pages 499-504.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. خودکاهش شرطی واریانس ناهمسانی in Wikipedia (Persian)
  2. Autoregressive conditional heteroskedasticity in Wikipedia (English)
  3. ARCH in Wikipedia (Vietnamese)
  4. بحث کاربر:Armin.ashoury in Wikipedia (Persian)

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