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Testing Non-linearity Using a Modified Q Test

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  • Marian Vavra

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

A new version of the Q test, based on generalized residual correlations (i.e. auto-correlations and cross-correlations), is developed in this paper. The Q test fixes two main shortcomings of the Mcleod and Li Q (MLQ) test often used in the literature: (i) the test is capable to capture some interesting non-linear models, for which the original MLQ test completely fails (e.g. a non-linear moving average model). Additionally, the Q test also significantly improves the power for some other non-linear models (e.g. a threshold moving average model), for which the original MLQ test does not work very well; (ii) the new Q test can be used for discrimination between simple and more complicated (non-linear/asymmetric) GARCH models as well.

Suggested Citation

  • Marian Vavra, 2012. "Testing Non-linearity Using a Modified Q Test," Birkbeck Working Papers in Economics and Finance 1204, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1204
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    File URL: https://eprints.bbk.ac.uk/id/eprint/5955
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    1. November Reading
      by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2016-11-04 20:28:00

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    Cited by:

    1. Grivas, Charisios, 2021. "An Automatic Portmanteau Test For Nonlinear Dependence," MPRA Paper 114312, University Library of Munich, Germany, revised 22 Aug 2022.

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    More about this item

    Keywords

    non-linearity testing; portmanteau Q test; auto-correlation; cross-correlation;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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