Testing in GARCH Models with Exogenous Covariates
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Abstract:
We present novel theory for testing for reduction of GARCH-X type models with an exogenous (X) covariate to standard GARCH type models. To deal with the problems of potential nuisance parameters on the boundary of the parameter space as well as lack of identification under the null, we exploit a noticeable property of specific zero-entries in the inverse information of the GARCH-X type models. Specifically, we consider sequential testing based on two likelihood ratio tests and as demonstrated the structure of the inverse information implies that the proposed test neither depends on whether the nuisance parameters lie on the boundary of the parameter space, nor on lack of identification. Our general results on GARCH-X type models are applied to Gaussian based GARCH-X models, GARCH-X models with Student’s t-distributed innovations as well as the integer-valued GARCH-X (PAR-X) models.

View the paper at the following link: papers.ssrn.com/sol3/papers.cfm?abstract_id=3024648
Date: 19 January 2018, 14:15 (Friday, 1st week, Hilary 2018)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room B
Speaker: Anders Rahbek (University of Copenhagen)
Organising department: Department of Economics
Part of: Nuffield Econometrics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Erin Saunders, Anne Pouliquen