A New Test for ARCH Effects and Its Finite-Sample Performance

Yongmiao Hong and Ramsey D Shehadeh

Journal of Business & Economic Statistics, 1999, vol. 17, issue 1, 91-108

Abstract: The authors propose a test for autoregressive conditional heteroscedasticity based on a weighted sum of the squared sample autocorrelations of squared residuals from a regression, typically with greater weight given to lower-order lags. The tests of R. F. Engle (1982), G. E. P. Box and D. A. Pierce (1970), and G. M. Ljung and G. E. P. Box (1978), are equivalent to the test with equal weighting. The authors' test does not require formulation of an alternative and permits choice of the lag number via data-driven methods. Simulation studies show that the new test performs reasonably well in finite samples especially with greater weight on lower-order lags. The authors apply the test in two empirical examples.

Date: 1999
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