Testing for Time-Varying Properties Under Misspecified Conditional Mean and Variance

Daiki Maki () and Yasushi Ota ()
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Daiki Maki: Doshisha University
Yasushi Ota: Okayama University of Science

Computational Economics, 2021, vol. 57, issue 4, No 9, 1167-1182

Abstract: Abstract This study examines statistical performance of tests for time-varying properties under misspecified conditional mean and variance. When time-varying properties of the conditional mean are tested in the case in which data have no time-varying mean but have time-varying variance, asymptotic tests have size distortions. The distortions are minimized by the use of a bootstrap method. Similarly, when time-varying properties of the conditional variance are tested in the case in which data have time-varying mean but no time-varying variance, asymptotic tests have large size distortions. The distortions are not improved even by the use of bootstrap methods. We show that tests for time-varying properties of the conditional mean by the bootstrap are robust regardless of the time-varying variance model, whereas tests for time-varying properties of the conditional variance do not perform well in the presence of misspecified time-varying mean.

Keywords: Time-varying properties; Mean; Variance; Misspecified models; Size distortions (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10614-020-10014-4

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