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Omitted Asymmetric Persistence and Conditional Heteroskedasticity

Author

Listed:
  • Luiz Lima

    (Getulio Vargas Foundation)

  • Breno Neri

    (Getulio Vargas Foundation)

Abstract

We show that asymmetric persistence induces ARCH effects, but the LM-ARCH test has power against it. On the other hand, the test for asymmetric dynamics proposed by Koenker and Xiao (2004) has correct size under the presence of ARCH errors. These results suggest that the LM-ARCH and the Koenker-Xiao tests may be used in applied research as complementary tools.

Suggested Citation

  • Luiz Lima & Breno Neri, 2006. "Omitted Asymmetric Persistence and Conditional Heteroskedasticity," Economics Bulletin, AccessEcon, vol. 3(5), pages 1-6.
    • Handle: RePEc:ebl:ecbull:eb-06c10003
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    References listed on IDEAS

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    1. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
    2. Nam, Kiseok & Washer, Kenneth M. & Chu, Quentin C., 2005. "Asymmetric return dynamics and technical trading strategies," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 391-418, February.
    3. Roger Koenker & Zhijie Xiao, 2002. "Inference on the Quantile Regression Process," Econometrica, Econometric Society, vol. 70(4), pages 1583-1612, July.
    4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
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    Cited by:

    1. Schechtman, Ricardo & Gaglianone, Wagner Piazza, 2012. "Macro stress testing of credit risk focused on the tails," Journal of Financial Stability, Elsevier, vol. 8(3), pages 174-192.

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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