Specification test for a linear regression model with ARCH process |
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| Institution: | 1. Department of Economics, University of Illinois at Urbana-Champaign, Champaign, IL 61821, USA;2. Department of Economics and Statistics, National University of Singapore, Singapore;1. International Institute for Financial Research, Jiangxi Normal University, Nanchang, China;2. Department of Finance, School of Economics, Jinan University, Guangzhou, China;3. School of Finance, Guangdong University of Foreign Studies, Guangzhou, China;1. Montpellier Business School, France;2. Institute of Finance, Audencia Business School, Nantes, France;3. La Rochelle Business School & CRIEF University of Poitiers, France;4. LEO, University of Orleans, France |
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| Abstract: | ARCH models are used widely in analyzing economic and financial time series data. Many tests are available to detect the presence of ARCH; however, there is no acceptable procedure available for testing an estimated ARCH model.. In this paper we develop a test for a linear regression model with ARCH disturbances using the framework of the information matrix (IM) test. For the ARCH specification, the covariance matrix of the indicator vector is not block diagonal, and the IM test is turned out to be a test for variation in the fourth moment, i.e., a test for heterokurtosis. An illustrative example is provided to demonstrate the usefulness of the proposed test. |
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