Testing constancy of unconditional variance in volatility models by misspecification and specification tests
Silvennoinen, Annastiina & Terasvirta, Timo (2016) Testing constancy of unconditional variance in volatility models by misspecification and specification tests. Studies in Nonlinear Dynamics and Econometrics, 20(4), pp. 347-364.
The topic of this paper is testing the hypothesis of constant unconditional variance in GARCH models against the alternative that the unconditional variance changes deterministically over time. Tests of this hypothesis have previously been performed as misspecification tests after fitting a GARCH model to the original series. It is found by simulation that the positive size distortion present in these tests is a function of the kurtosis of the GARCH process. Adjusting the size by numerical methods is considered. The possibility of testing the constancy of the unconditional variance before fitting a GARCH model to the data is discussed. The power of the ensuing test is vastly superior to that of the misspecification test and the size distortion minimal. The test has reasonable power already in very short time series. It would thus serve as a test of constant variance in conditional mean models. An application to exchange rate returns is included.
Impact and interest:
Citation counts are sourced monthly from and citation databases.
These databases contain citations from different subsets of available publications and different time periods and thus the citation count from each is usually different. Some works are not in either database and no count is displayed. Scopus includes citations from articles published in 1996 onwards, and Web of Science® generally from 1980 onwards.
Citations counts from theindexing service can be viewed at the linked Google Scholar™ search.
Full-text downloads displays the total number of times this work’s files (e.g., a PDF) have been downloaded from QUT ePrints as well as the number of downloads in the previous 365 days. The count includes downloads for all files if a work has more than one.
|Item Type:||Journal Article|
|Keywords:||autoregressive conditional heteroskedasticity, modeling volatility, testing parameter constancy, time-varying GARCH|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
|Copyright Owner:||Copyright 2016 Walter de Gruyter GmbH|
|Deposited On:||12 Oct 2016 06:43|
|Last Modified:||01 Feb 2017 14:01|
Repository Staff Only: item control page