Specification Tests for Asymmetric GARCH
AbstractIn this paper I present two new Lagrange multiplier test statistics designed for testing the null of GARCH (1,1), against the alternative of asymmetric GARCH. For one test the alternative is the generalized QARCH (1,1) model of Sentana , and for the other the alternative is the logistic smooth transition GARCH (1,1) model of Hagerud , and González-Rivera . In the study I present small sample properties for the two statistics. The empirical size is shown to be equal to the theoretical for reasonable sample sizes. Furthermore, I show that the power of both tests is superior to that of the asymmetry tests proposed by Engle and Ng . This is true even if the true data generating process is not the GQARCH or LSTGARCH model, but any of the models, EGARCH, GJR, TGARCH, A-PARCH, and VS-ARCH. Thus, the two tests are in fact tests for general GARCH asymmetry,.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 163.
Length: 32 pages
Date of creation: Mar 1997
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GARCH; asymmetry; specification tests; Monte Carlo experiment;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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