Simulated evidence on the distribution of the standardized one-step-ahead prediction errors in ARCH processes

Stavros Degiannakis and Evdokia Xekalaki

Applied Financial Economics Letters, 2007, vol. 3, issue 1, pages 31-37

Abstract: In statistical modelling contexts, the use of one-step-ahead prediction errors for testing hypotheses on the forecasting ability of an assumed model has been widely considered. Quite often, the testing procedure requires independence in a sequence of recursive standardized prediction errors, which cannot always be readily deduced particularly in the case of econometric modelling. In this paper, the results of a series of Monte Carlo simulations reveal that independence can be assumed to hold.

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