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Bootstrap misspecification tests for ARCH based on the empirical process of squared residuals

Author

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  • HORVATH, Lajos
  • KOKOSZKA, Piotr
  • TEYSSIÈRE , Gilles

Abstract

We propose and study by means of simulations and graphical tools a class of goodness-of-fit tests for ARCH models. The tests are based on the empirical distribution function of squared residuals and smooth (parametric) bootstrap. We examine empirical size and power by means of a simulation study. While the tests have overall correct size, their power strongly depends on the type of alternative and is particularly high when the assumption of Gaussian innovations is violated. As an example, the tests are applied to returns on Foreign Exchange rates.

Suggested Citation

  • HORVATH, Lajos & KOKOSZKA, Piotr & TEYSSIÈRE , Gilles, 2003. "Bootstrap misspecification tests for ARCH based on the empirical process of squared residuals," LIDAM Discussion Papers CORE 2003009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2003009
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2003.html
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    Cited by:

    1. Zhu, Ke, 2015. "Hausman tests for the error distribution in conditionally heteroskedastic models," MPRA Paper 66991, University Library of Munich, Germany.

    More about this item

    Keywords

    ARCH models; empirical process; goodness-of-fit tests; size-power curves; smooth bootstrap; squared residuals;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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