The finite-sample size of the BDS test for GARCH standardized residuals

Marcelo Fernandes and Pierre-Yves Preumont

No 361, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: This paper uses a multivariate response surface methodology to analyze the size distortion of the BDS test when applied to standardized residuals of rst-order GARCH processes. The results show that the asymptotic standard normal distribution is an unreliable approximation, even in large samples. On the other hand, a simple log-transformation of the squared standardized residuals seems to correct most of the size problems. Nonethe-less, the estimated response surfaces can provide not only a measure of the size distortion, but also more adequate critical values for the BDS test in small samples.

Date: 2014-05-05
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Finite-Sample Size of the BDS Test for GARCH Standardized Residuals (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:361

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