The effect of (mis-specified) GARCH filters on the finite sample distribution of the BDS test
Brooks, C.
It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing. To link to this item DOI: 10.1023/A:1008612905284 Abstract/SummaryThis 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.
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