A Nonparametric Test for Autoregressive Conditional Heteroscedasticity: A Markov-Chain Approach |
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Authors: | Allan W Gregory |
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Institution: | Department of Economics , Queen's University , Kingston , Ontario , K7L 3N6 , Canada |
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Abstract: | In this article we propose a nonparametric test for autoregressive conditional heteroscedasticity based on finite-state Markov chains. A simple Monte Carlo experiment suggests that in finite samples it performs comparably to the Lagrange multiplier test under conditional normality and is superior for the t, lognormal, and exponential distributions. As an illustration, we apply both tests to Canadian/U.S. forward foreign exchange data. |
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Keywords: | Lagrange multiplier tests Likelihood ratio tests Monte Carlo |
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