Generalized LM Tests for Functional Form and Heteroscedasticity
We present a generalized LM test of heteroscedasticity allowing the presence of data transformation and a generalized LM test of functional form allowing the presence of heteroscedasticity. Both generalizations are meaningful as non-normality and heteroscedasticity are common in economic data. A joi...
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| Main Authors: | , |
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| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2008
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/soe_research/504 |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We present a generalized LM test of heteroscedasticity allowing the presence of data transformation and a generalized LM test of functional form allowing the presence of heteroscedasticity. Both generalizations are meaningful as non-normality and heteroscedasticity are common in economic data. A joint test of functional form and heteroscedasticity is also given. These tests are further ‘studentized’ to account for possible excess skewness and kurtosis of the errors in the model. All tests are easy to implement. They are based on the expected information and are shown to possess excellent finite sample properties. Several related tests are also discussed and their finite sample performances assessed. We found that our newly proposed tests significantly outperform the others, in particular in the cases where the errors are non-normal. [ABSTRACT FROM AUTHOR] |
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