Can Portemanteau Nonlinearity Tests Serve as General Mis-Specification Tests? Evidence from Symmetric and Asymmetric GARCH Models

Chris Brooks and Ólan Henry

No 723, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: A number of recent papers have employed the BDS test as a general test for mis-specification for linear and nonlinear models. We show that for a particular class of conditionally heteroscedastic models, the BDS test is unable to detect a common mis-specification. Our results also demonstrate that specific rather than portmanteau diagnostics are required to detect neglected asymmetry in volatility. However for both classes of tests reasonable power is only obtained using very large sample sizes.

Keywords: ECONOMIC MODELS; REGRESSION ANALYSIS; TESTING (search for similar items in EconPapers)
JEL-codes: C22 C52 (search for similar items in EconPapers)
Pages: 12 pages
Date: 1999
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Journal Article: Can portmanteau nonlinearity tests serve as general mis-specification tests?: Evidence from symmetric and asymmetric GARCH models (2000)
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