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Testing for Time-Varying Properties Under Misspecified Conditional Mean and Variance

Author

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  • Daiki Maki

    (Doshisha University)

  • Yasushi Ota

    (Okayama University of Science)

Abstract

This study examines statistical performance of tests for time-varying properties under misspecified conditional mean and variance. When time-varying properties of the conditional mean are tested in the case in which data have no time-varying mean but have time-varying variance, asymptotic tests have size distortions. The distortions are minimized by the use of a bootstrap method. Similarly, when time-varying properties of the conditional variance are tested in the case in which data have time-varying mean but no time-varying variance, asymptotic tests have large size distortions. The distortions are not improved even by the use of bootstrap methods. We show that tests for time-varying properties of the conditional mean by the bootstrap are robust regardless of the time-varying variance model, whereas tests for time-varying properties of the conditional variance do not perform well in the presence of misspecified time-varying mean.

Suggested Citation

  • Daiki Maki & Yasushi Ota, 2021. "Testing for Time-Varying Properties Under Misspecified Conditional Mean and Variance," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1167-1182, April.
    • Handle: RePEc:kap:compec:v:57:y:2021:i:4:d:10.1007_s10614-020-10014-4
    DOI: 10.1007/s10614-020-10014-4
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