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Specification Tests for Asymmetric GARCH

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  • Hagerud, Gustaf E.

    (Department of Finance)

Abstract

In this paper I present two new Lagrange multiplier test statistics designed for testing the null of GARCH (1,1), against the alternative of asymmetric GARCH. For one test the alternative is the generalized QARCH (1,1) model of Sentana [1995], and for the other the alternative is the logistic smooth transition GARCH (1,1) model of Hagerud [1996], and González-Rivera [1996]. In the study I present small sample properties for the two statistics. The empirical size is shown to be equal to the theoretical for reasonable sample sizes. Furthermore, I show that the power of both tests is superior to that of the asymmetry tests proposed by Engle and Ng [1993]. This is true even if the true data generating process is not the GQARCH or LSTGARCH model, but any of the models, EGARCH, GJR, TGARCH, A-PARCH, and VS-ARCH. Thus, the two tests are in fact tests for general GARCH asymmetry,.

Suggested Citation

  • Hagerud, Gustaf E., 1997. "Specification Tests for Asymmetric GARCH," SSE/EFI Working Paper Series in Economics and Finance 163, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0163
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    References listed on IDEAS

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    1. Borden, James P., 1988. "An assessment of the impact of diagnosis-related group (DRG)-based reimbursement on the technical efficiency of New Jersey hospitals using data envelopment analysis," Journal of Accounting and Public Policy, Elsevier, pages 77-96.
    2. Pauly, Mark V & Redisch, Michael, 1973. "The Not-For-Profit Hospital as a Physicians' Cooperative," American Economic Review, American Economic Association, pages 87-99.
    3. Blomqvist, Ake, 1991. "The doctor as double agent: Information asymmetry, health insurance, and medical care," Journal of Health Economics, Elsevier, vol. 10(4), pages 411-432.
    4. Grosskopf, S. & Valdmanis, V., 1987. "Measuring hospital performance : A non-parametric approach," Journal of Health Economics, Elsevier, vol. 6(2), pages 89-107, June.
    5. James F. Burgess, Jr. & Paul W. Wilson, 1996. "Hospital Ownership and Technical Inefficiency," Management Science, INFORMS, pages 110-123.
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    Cited by:

    1. Changli He & Annastiina Silvennoinen & Timo Teräsvirta, 2008. "Parameterizing Unconditional Skewness in Models for Financial Time Series," Journal of Financial Econometrics, Society for Financial Econometrics, pages 208-230.
    2. Bal??zs ??gert & Yosra Koubaa, 2004. "Modelling Stock Returns in the G-7 and in Selected CEE Economies: A Non-linear GARCH Approach," William Davidson Institute Working Papers Series 2004-663, William Davidson Institute at the University of Michigan.
    3. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, pages 762-793.
    4. Menelaos Karanasos & J. Kim, "undated". "Alternative GARCH in Mean Models: An Application to the Korean Stock Market," Discussion Papers 00/25, Department of Economics, University of York.

    More about this item

    Keywords

    GARCH; asymmetry; specification tests; Monte Carlo experiment;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: 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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