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Bootstrapping Neural tests for conditional heteroskedasticity

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  • Carole Siani

    ()
    (University of Claude Bernard Lyon 1 (France).)

  • Christian de Peretti

    (University of Evry-Val-d'Essonne (France).)

Abstract

We deal with bootstrapping tests for detecting conditional heteroskedasticity in the context of standard and nonstandard ARCH models. We develope parametric and nonparametric bootstrap tests based both on the LM statistic and a neural statistic. The neural tests are designed to approximate an arbitrary nonlinear form of the conditional variance by a neural function. While published tests are valid asymptotically, they are not exact in finite samples and suffer from a substantial size distortion: the finite-sample error remains non-negligible, even for several hundred observations. Here, we treat this problem using bootstrap methods, making possible a better finite-sample estimate of the distribution of the test statistic. A graphical presentation employing a size-correction principle is used to show the true power of the tests rather than the spurious nominal power typically given

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 301.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:301

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Keywords: Bootstrap; Artificial Neural Networks; ARCH models; inference tests;

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  1. Joel L. Horowitz, 1996. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Econometrics 9602009, EconWPA, revised 05 Mar 1996.
  2. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
  3. Weber, N. C., 1984. "On resampling techniques for regression models," Statistics & Probability Letters, Elsevier, vol. 2(5), pages 275-278, October.
  4. Lee, Tae-Hwy & White, Halbert & Granger, Clive W. J., 1993. "Testing for neglected nonlinearity in time series models : A comparison of neural network methods and alternative tests," Journal of Econometrics, Elsevier, vol. 56(3), pages 269-290, April.
  5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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