SSE/EFI Working Paper Series in Economics and Finance
Evaluating GARCH models
() and Timo Teräsvirta
Abstract: In this paper a unified framework for testing the adequacy
of an estimated GARCH model is presented. Parametric LM or LM type tests of
no ARCH in standardized errors, linearity, and parameter constancy are
proposed. The asymptotic null distributions of the tests are standard,
which makes application easy. Versions of the tests that are robust against
nonnormal errors are provided. The finite sample properties of the test
statistics are investigated by simulation. The robust tests prove superior
to the nonrobust ones when the errors are nonnormal. They also compare
favourably in terms of power with misspecification tests previously
proposed in the literature.
Keywords: Conditional heteroskedasticity; model misspecification test; nonlinear time series; parameter constancy; smooth transition GARCH.; (follow links to similar papers)
JEL-Codes: C22; C52; (follow links to similar papers)
26 pages, December 18, 1998, Revised October 9, 2001
This is the final revised version (October 2001) of the original (December 1998) paper.
- This paper is published as:
Lundbergh, Stefan and Timo Teräsvirta, (2002), 'Evaluating GARCH models', Journal of Econometrics, Vol. 110, pages 417-435
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