A Comparison of the Runs Test for Volatility Forecastability and the LM Test for GARCH Using Aggregated Returns

Yasemin Ulu

Econometric Reviews, 2007, vol. 26, issue 5, 557-566

Abstract: Christoffersen and Diebold (2000) have introduced a runs test for forecastable volatility in aggregated returns. In this note, we compare the size and power of their runs test and the more conventional LM test for GARCH by Monte Carlo simulation. When the true daily process is GARCH, EGARCH, or stochastic volatility, the LM test has better power than the runs test for the moderate-horizon returns considered by Christoffersen and Diebold. For long-horizon returns, however, the tests have very similar power. We also consider a qualitative threshold GARCH model. For this process, we find that the runs test has greater power than the LM test. Theresults support the use of the runs test with aggregated returns.

Keywords: Aggregated returns; Forecast horizon; GARCH; LM test; Monte Carlo simulation; Runs test; Volatility forecastability (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/07474930701512147 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:emetrv:v:26:y:2007:i:5:p:557-566

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/LECR20

DOI: 10.1080/07474930701512147

Access Statistics for this article

Econometric Reviews is currently edited by Dr. Essie Maasoumi

More articles in Econometric Reviews from Taylor & Francis Journals
Bibliographic data for series maintained by ().