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Specification Tests for Asymmetric GARCH

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  • Hagerud, Gustaf E.

    (Department of Finance)

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    Abstract

    In 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 [1995], and for the other the alternative is the logistic smooth transition GARCH (1,1) model of Hagerud [1996], and González-Rivera [1996]. 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 [1993]. 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 Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 163.

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    Length: 32 pages
    Date of creation: Mar 1997
    Date of revision:
    Handle: RePEc:hhs:hastef:0163

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    Related research

    Keywords: GARCH; asymmetry; specification tests; Monte Carlo experiment;

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    Cited by:
    1. Balázs Égert & Yosra Koubaa, 2004. "Modelling Stock Returns in the G-7 and in Selected CEE Economies: A Non-linear GARCH Approach," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 2004-663, William Davidson Institute at the University of Michigan.
    2. Changli He & Annastiina Silvennoinen & Timo Teräsvirta, 2008. "Parameterizing unconditional skewness in models for financial time series," CREATES Research Papers 2008-07, School of Economics and Management, University of Aarhus.
    3. Menelaos Karanasos & J. Kim, . "Alternative GARCH in Mean Models: An Application to the Korean Stock Market," Discussion Papers, Department of Economics, University of York 00/25, Department of Economics, University of York.

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