A Testing Procedure for Constant Parameters in Stochastic Volatility Models

Juan Hoyo (), Guillermo Llorente () and Carlos Rivero ()
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Juan Hoyo: Universidad Autónoma de Madrid
Guillermo Llorente: Universidad Autónoma de Madrid
Carlos Rivero: Universidad Complutense de Madrid

Computational Economics, 2020, vol. 56, issue 1, No 10, 163-186

Abstract: Abstract This paper proposes a two-step method for an omnibus misspecification test for constant parameters in the volatility equation of stochastic volatility models. The proposed test has a well-known null asymptotic distribution free of nuisance parameters. It is easy to implement and has low computational cost. Monte Carlo simulations support the relevance of the proposed method, evaluate the performance of the procedure, and highlight its small computational load. An empirical application shows the relevance of the procedure.

Keywords: Structural change; Sup-Wald test; Monte Carlo simulations; Recursive statistics; Time-varying parameters (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10614-019-09892-0

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