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A New Test for ARCH Effects and Its Finite-Sample Performance


  • Hong, Yongmiao
  • Shehadeh, Ramsey D


The authors propose a test for autoregressive conditional heteroscedasticity based on a weighted sum of the squared sample autocorrelations of squared residuals from a regression, typically with greater weight given to lower-order lags. The tests of R. F. Engle (1982), G. E. P. Box and D. A. Pierce (1970), and G. M. Ljung and G. E. P. Box (1978), are equivalent to the test with equal weighting. The authors' test does not require formulation of an alternative and permits choice of the lag number via data-driven methods. Simulation studies show that the new test performs reasonably well in finite samples especially with greater weight on lower-order lags. The authors apply the test in two empirical examples.

Suggested Citation

  • Hong, Yongmiao & Shehadeh, Ramsey D, 1999. "A New Test for ARCH Effects and Its Finite-Sample Performance," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 91-108, January.
  • Handle: RePEc:bes:jnlbes:v:17:y:1999:i:1:p:91-108

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    Cited by:

    1. Lumsdaine, Robin L. & Ng, Serena, 1999. "Testing for ARCH in the presence of a possibly misspecified conditional mean," Journal of Econometrics, Elsevier, vol. 93(2), pages 257-279, December.
    2. Par Sjolander, 2010. "A stationary unbiased finite sample ARCH-LM test procedure," Applied Economics, Taylor & Francis Journals, vol. 43(8), pages 1019-1033.
    3. Gabriele Fiorentini & Enrique Sentana, 2009. "Dynamic Specification Tests for Static Factor Models," Working Papers wp2009_0912, CEMFI.
    4. Y. K. Tse, 2002. "Residual-based diagnostics for conditional heteroscedasticity models," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 358-374, June.
    5. Seonjin Kim, 2015. "Hypothesis Testing For Arch Models: A Multiple Quantile Regressions Approach," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(1), pages 26-38, January.

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