A Nonparametric Goodness-of-fit-based Test for Conditional Heteroskedasticity

• Main Authors: SU, Liangjun, ULLAH, Aman
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1557; https://ink.library.smu.edu.sg/context/soe_research/article/2556/viewcontent/ET2013_Su_Ullah.pdf
• Institution: Singapore Management University

In this paper we propose a new nonparametric test for conditional heteroskedasticity based on a measure of nonparametric goodness-of-fit (R2) that is obtained from the local polynomial regression of the residuals from a parametric regression on some covariates. We show that after being appropriately standardized, the nonparametric R2 is asymptotically normally distributed under the null hypothesis and a sequence of Pitman local alternatives. We also prove the consistency of the test and propose a bootstrap method to obtain the bootstrap p-values. We conduct a small set of simulations and compare our test with some popular parametric and nonparametric tests in the literature.