A Test for Time-Varying Smooth Transition Conditional Covariance Models in Multivariate Time Series

Sanhaji Bilel ()
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Sanhaji Bilel: 27081 Université Paris 8, LED , Saint-Denis, France

Studies in Nonlinear Dynamics & Econometrics, 2025, vol. 29, issue 4, 425-436

Abstract: This paper introduces a novel test designed to assess the validity of time-varying smooth transition conditional covariance models. We develop a model driven by five scalar parameters in order to build the Lagrange Multiplier test within the framework of multivariate conditional heteroskedastic time series models with smooth transition functions. We detail the development of these tests, emphasizing their applicability. The methodology is scrutinized through Monte Carlo simulations, providing insights into its finite sample properties. Additionally, empirical illustrations underscore the practical relevance of the proposed tests, demonstrating their efficiency in capturing time-varying smooth transitions within financial datasets.

Keywords: Lagrange multiplier test; multivariate GARCH; scalar BEKK; time-varying smooth transition (search for similar items in EconPapers)
JEL-codes: C12 C32 C52 C58 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/snde-2023-0109

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