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A Locally Most Mean Powerful Based Score Test for ARCH and GARCH Regression Disturbances

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  • Lee, John H. H.
  • King, Maxwell L.

Abstract

This paper considers the twin problems of testing for ARCH and GARCH disturbances in the linear regression model. A feature of these testing problems, ignored by the standard Lagrange multiplier test, is that they are one-sided in nature. A test which exploits this one-sided aspect is constructed based on the sum of the scores. Its small-sample size and power properties under both normal and leptokurtic disturbances are investigated via a Monte Carlo experiment. The results indicate that the new test typically has superior power to two versions of the Lagrange multiplier test and possibly also more accurate asymptotic critical values.

Suggested Citation

  • Lee, John H. H. & King, Maxwell L., "undated". "A Locally Most Mean Powerful Based Score Test for ARCH and GARCH Regression Disturbances," Department of Econometrics and Business Statistics Working Papers 267297, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:ags:monebs:267297
    DOI: 10.22004/ag.econ.267297
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