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Testing Moving Average Against Autoregressive Disturbances in the Linear Regression Model

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  • Silvapulle, Paramsothy
  • King, Maxwell L.

Abstract

This paper considers testing for MA(1) against AR(1) disturbances in the linear regression model. Tests investigated include approximate point optimal invariant (POI) tests, an asymptotic test of the second-order residual autocorrelation coefficient and a Lagrange multiplier (LM) test. A Monte Carlo experiment compares their small-sample performances. Of the asymptotic tests, the LM test has the most satisfactory sizes, while its rival has the better overall power. We find the approximate POI tests have superior size and power properties in comparison to the asymptotic tests. An approximate POI test is applied to a random walk model for Australian real interest rates.

Suggested Citation

  • Silvapulle, Paramsothy & King, Maxwell L., "undated". "Testing Moving Average Against Autoregressive Disturbances in the Linear Regression Model," Department of Econometrics and Business Statistics Working Papers 267070, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:ags:monebs:267070
    DOI: 10.22004/ag.econ.267070
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    2. Atukorala, Ranjani & Sriananthakumar, Sivagowry, 2015. "A comparison of the accuracy of asymptotic approximations in the dynamic regression model using Kullback-Leibler information," Economic Modelling, Elsevier, vol. 45(C), pages 169-174.
    3. McAleer, Michael, 1995. "The significance of testing empirical non-nested models," Journal of Econometrics, Elsevier, vol. 67(1), pages 149-171, May.
    4. Sriananthakumar, Sivagowry, 2015. "Approximate Non-Similar critical values based tests vs Maximized Monte Carlo tests," Economic Modelling, Elsevier, vol. 49(C), pages 387-394.
    5. Silvapulle, Paramsothy & King, Maxwell L., 1993. "Nonnested testing for autocorrelation in the linear regression model," Journal of Econometrics, Elsevier, vol. 58(3), pages 295-314, August.
    6. Sriananthakumar, Sivagowry & King, Maxwell L., 2006. "A new approximate point optimal test of a composite null hypothesis," Journal of Econometrics, Elsevier, vol. 130(1), pages 101-122, January.
    7. C. R. McKenzie & Michael McAleer, 2001. "Comparing Tests of Autoregressive Versus Moving Average Errors in Regression Models Using Bahadur's Asymptotic Relative Efficiency," ISER Discussion Paper 0537, Institute of Social and Economic Research, The University of Osaka.
    8. Maxwell L. King & Sivagowry Sriananthakumar, 2015. "Point Optimal Testing: A Survey of the Post 1987 Literature," Monash Econometrics and Business Statistics Working Papers 5/15, Monash University, Department of Econometrics and Business Statistics.
    9. Begum, Nelufa & King, Maxwell L., 2005. "Most mean powerful test of a composite null against a composite alternative," Computational Statistics & Data Analysis, Elsevier, vol. 49(4), pages 1079-1104, June.
    10. Colin R. McKenzie & Michael McAleer & Len Gill, 1999. "Simple Procedures for Testing Autoregressive Versus Moving Average Errors in Regression Models," The Japanese Economic Review, Japanese Economic Association, vol. 50(3), pages 239-252, September.

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