European Business Schools Librarian's Group

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 317: An ARCH Robust STAR Test

Michael K. Andersson, Bruno Eklund () and Johan Lyhagen ()
Additional contact information
Michael K. Andersson: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Bruno Eklund: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Johan Lyhagen: Department of Information Science, Uppsala University, Postal: P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: The LM type linearity test for STAR nonlinearities is severely distorted when the process is governed by conditional heteroskedasticity. In order to correct the test we propose a parametric bootstrap. It is shown, by means of Monte Carlo methods, that the bootstrap test is almost exact.

Keywords: Smooth transition autoregressive models; Bootstrap; Parametric resampling; Size distortion; Power

JEL-codes: C12; C22

11 pages, May 11, 1999

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