TY - JOUR
T1 - The effect of (mis-specified) GARCH filters on the finite sample distribution of the BDS test
AU - Brooks, Chris
AU - Heravi, Saeed M.
PY - 1999
Y1 - 1999
N2 - This paper considers the effect of using a GARCH filter on the properties of the BDS test statistic as well as a number of other issues relating to the application of the test. It is found that, for certain values of the user-adjustable parameters, the finite sample distribution of the test is far-removed from asymptotic normality. In particular, when data generated from some completely different model class are filtered through a GARCH model, the frequency of rejection of iid falls, often substantially. The implication of this result is that it might be inappropriate to use non-rejection of iid of the standardised residuals of a GARCH model as evidence that the GARCH model 'fits' the data.
AB - This paper considers the effect of using a GARCH filter on the properties of the BDS test statistic as well as a number of other issues relating to the application of the test. It is found that, for certain values of the user-adjustable parameters, the finite sample distribution of the test is far-removed from asymptotic normality. In particular, when data generated from some completely different model class are filtered through a GARCH model, the frequency of rejection of iid falls, often substantially. The implication of this result is that it might be inappropriate to use non-rejection of iid of the standardised residuals of a GARCH model as evidence that the GARCH model 'fits' the data.
U2 - 10.1023/A:1008612905284
DO - 10.1023/A:1008612905284
M3 - Article (Academic Journal)
SN - 0927-7099
VL - 13
SP - 147
EP - 162
JO - Computational Economics
JF - Computational Economics
IS - 2
ER -