Misspecification Testing in GARCH-MIDAS Models

Arbeitspapier

We develop a misspecification test for the multiplicative two-component GARCH-MIDAS model suggested in Engle et al. (2013). In the GARCH-MIDAS model a short-term unit variance GARCH component fluctuates around a smoothly time-varying long-term component which is driven by the dynamics of an explanatory variable. We suggest a Lagrange Multiplier statistic for testing the null hypothesis that the variable has no explanatory power. Hence, under the null hypothesis the long-term component is constant and the GARCH-MIDAS reduces to the simple GARCH model. We derive the asymptotic theory for our test statistic and investigate its finite sample properties by Monte-Carlo simulation. The usefulness of our procedure is illustrated by an empirical application to S&P 500 return data.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series ; No. 597

Classification and Topics

• Classification: Wirtschaft
• Subject: Volatility Component Models ; LM test ; Long-term Volatility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Conrad, Christian ; Schienle, Melanie
• Event: Veröffentlichung
• (who): University of Heidelberg, Department of Economics
• (where): Heidelberg
• (when): 2015

Further information

• DOI: doi:10.11588/heidok.00019006
• Handle: http://hdl.handle.net/10419/127414
• URN: urn:nbn:de:bsz:16-heidok-190061
• Last update: 10.03.2025, 11:45 AM CET