Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/191545 
Year of Publication: 
2019
Series/Report no.: 
KIT Working Paper Series in Economics No. 121
Publisher: 
Karlsruher Institut für Technologie (KIT), Institut für Volkswirtschaftslehre (ECON), Karlsruhe
Abstract: 
We consider the problem of testing for an omitted multiplicative long-term component in GARCH-type models. Under the alternative there is a two-component model with a short-term GARCH component that 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. We derive the asymptotic theory for our test statistic and investigate its finite sample properties by Monte-Carlo simulation. Our test also covers the mixed-frequency case in which the returns are observed at a higher frequency than the explanatory variable. The usefulness of our procedure is illustrated by empirical applications to S&P 500 return data.
Subjects: 
GARCH-MIDAS
LM test
Long-Term Volatility
Mixed-Frequency Data
Volatility Component Models
JEL: 
C53
C58
E32
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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