THE BDS TEST AS A TEST FOR THE ADEQUACY OF A GARCH(1,1) SPECIFICATION: A MONTE CARLO STUDY

Guglielmo Maria Caporale, Christos Ntantamis, Theologos Pantelidis and Nikitas Pittis ()

Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: In this study we examine the widely used Brock, Dechert and Scheinkman (BDS) test when applied to the logarithm of the standardized residuals of an estimated GARCH(1,1) model as a test for the adequacy of this specification. We review the conditions derived by De Lima (1996, Econometric Reviews, 15, 237-259) for the nuisance-parameter free property to hold, and address the issue of their necessity, using the flexible framework offered by the GARCH(1,1) model in terms of moment, memory and time heterogeneity properties. By means of Monte Carlo simulations, we show that the BDS test statistic still approximates the standard null distribution even for mildly explosive processes that violate the majority of the conditions. Thus, the test performs reasonably well, its empirical size being rather close to the nominal one. As a by-product of this study, we also shed light on the related issue of consistency of the QML estimators of the conditional variance parameters under various parameter configurations and alternative distributional assumptions on the innovation process.

Pages: 22 pages
Date: 2004-10
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.brunel.ac.uk/329/efwps/04-14.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.brunel.ac.uk/329/efwps/04-14.pdf [301 Moved Permanently]--> https://www.brunel.ac.uk/329/efwps/04-14.pdf)

Related works:
Journal Article: The BDS Test as a Test for the Adequacy of a GARCH(1,1) Specification: A Monte Carlo Study (2005)
Working Paper: THE BDS TEST AS A TEST FOR THE ADEQUACY OF A GARCH(1,1) SPECIFICATION: A MONTE CARLO STUDY (2004)
Working Paper: The BDS Test as a Test for the Adequacy of a GARCH(1,1) Specification. A Monte Carlo Study (2004)
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:bru:bruppp:04-14

Access Statistics for this paper

More papers in Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University Brunel University, Uxbridge, Middlesex UB8 3PH, UK.
Bibliographic data for series maintained by John.Hunter ().