Testing for nonlinearity in mean and volatility for heteroskedastic models

Cathy W. S. Chen (), Richard H. Gerlach and Amanda P.J. Tai

Mathematics and Computers in Simulation (MATCOM), 2008, vol. 79, issue 3, 489-499

Abstract: A simple test for threshold nonlinearity in either the mean or volatility equation, or both, of a heteroskedastic time series model is proposed. The procedure extends current Bayesian Markov chain Monte Carlo methods and threshold modelling by employing a general double threshold GARCH model that allows for an explosive, non-stationary regime. Posterior credible intervals on model parameters are used to detect and specify threshold nonlinearity in the mean and/or volatility equations. Simulation experiments demonstrate that the method works favorably in identifying model specifications varying in complexity from the conventional GARCH up to the full double-threshold nonlinear GARCH model with an explosive regime, and is robust to over-specification in model orders.

Keywords: Asymmetric volatility model; Bayesian; Double threshold GARCH models; Markov chain Monte Carlo method (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:79:y:2008:i:3:p:489-499

DOI: 10.1016/j.matcom.2008.01.044

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