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Misspecification Testing in GARCH-MIDAS Models
- Publication Year :
- 2015
- Publisher :
- Heidelberg: University of Heidelberg, Department of Economics, 2015.
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Abstract
- We develop a misspecification test for the multiplicative two-component GARCH-MIDAS model suggested in Engle et al. (2013). In the GARCH-MIDAS model a short-term unit variance GARCH component fluctuates around a smoothly time-varying long-term component which is driven by the dynamics of an explanatory variable. We suggest a Lagrange Multiplier statistic for testing the null hypothesis that the variable has no explanatory power. Hence, under the null hypothesis the long-term component is constant and the GARCH-MIDAS reduces to the simple GARCH model. We derive the asymptotic theory for our test statistic and investigate its finite sample properties by Monte-Carlo simulation. The usefulness of our procedure is illustrated by an empirical application to S&P 500 return data.
- Subjects :
- LM test
Volatility Component Models
Long-term Volatility
ddc:330
330 Economics
Subjects
Details
- Language :
- English
- Database :
- OpenAIRE
- Accession number :
- edsair.dedup.wf.001..43e32bef06b78bab0af168875fec820b