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The Fixed Volatility Bootstrap for a Class of Arch(q) Models

Author

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  • Giuseppe Cavaliere
  • Rasmus Søndergaard Pedersen
  • Anders Rahbek

Abstract

The ‘fixed regressor’ – or ‘fixed design’ – bootstrap is usually considered in the context of classic regression, or conditional mean (autoregressive) models, see for example, Gonçalves and Kilian, 2004). We consider here inference for a general class of (non)linear ARCH models of order q, based on a ‘Fixed Volatility’ bootstrap. In the Fixed Volatility bootstrap, the lagged variables in the conditional variance equation are kept fixed at their values in the original series, while the bootstrap innovations are, as is standard, resampled with replacement from the estimated residuals based on quasi maximum likelihood estimation. We derive a full asymptotic theory to establish validity for the Fixed Volatility bootstrap applied to Wald statistics for general restrictions on the parameters. A key feature of the Fixed Volatility bootstrap is that the bootstrap sample, conditional on the original data, is an independent sequence. Inspection of the proof of bootstrap validity reveals that such conditional independence simplifies the asymptotic analysis considerably. In contrast to other bootstrap methods, one does not have to take into account the conditional dependence structure of the bootstrap process itself. We also investigate the finite sample performance of the Fixed Volatility bootstrap by means of a small scale Monte Carlo experiment. We find evidence that for small sample sizes, the Fixed Volatility bootstrap test is superior to the asymptotic test, and to the recursive bootstrap‐based test. For large samples, both bootstrap schemes and the asymptotic test share properties, as expected from the asymptotic theory. Its appealing theoretical properties, together with its good finite sample performance, suggest that the proposed Fixed Volatility bootstrap may be an important tool for the analysis of the bootstrap in more general volatility models.

Suggested Citation

  • Giuseppe Cavaliere & Rasmus Søndergaard Pedersen & Anders Rahbek, 2018. "The Fixed Volatility Bootstrap for a Class of Arch(q) Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 39(6), pages 920-941, November.
    • Handle: RePEc:bla:jtsera:v:39:y:2018:i:6:p:920-941
    DOI: 10.1111/jtsa.12421
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    References listed on IDEAS

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    Cited by:

    1. Alexander Heinemann, 2019. "A Bootstrap Test for the Existence of Moments for GARCH Processes," Papers 1902.01808, arXiv.org, revised Jul 2019.
    2. Wang, Xuqin & Li, Muyi, 2023. "Bootstrapping the transformed goodness-of-fit test on heavy-tailed GARCH models," Computational Statistics & Data Analysis, Elsevier, vol. 184(C).
    3. Alexander Heinemann & Sean Telg, 2018. "A Residual Bootstrap for Conditional Expected Shortfall," Papers 1811.11557, arXiv.org.
    4. Eric Beutner & Alexander Heinemann & Stephan Smeekes, 2018. "A Residual Bootstrap for Conditional Value-at-Risk," Papers 1808.09125, arXiv.org, revised Aug 2023.
    5. Lütkepohl, Helmut & Schlaak, Thore, 2019. "Bootstrapping impulse responses of structural vector autoregressive models identified through GARCH," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 41-61.
    6. Cavaliere, Giuseppe & Nielsen, Heino Bohn & Pedersen, Rasmus Søndergaard & Rahbek, Anders, 2022. "Bootstrap inference on the boundary of the parameter space, with application to conditional volatility models," Journal of Econometrics, Elsevier, vol. 227(1), pages 241-263.
    7. Cavaliere, Giuseppe & Lu, Ye & Rahbek, Anders & Stærk-Østergaard, Jacob, 2023. "Bootstrap inference for Hawkes and general point processes," Journal of Econometrics, Elsevier, vol. 235(1), pages 133-165.

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