Generalized LM Tests for Functional Form and Heteroscedasticity

28 Pages Posted: 14 Jul 2008

See all articles by Zhenlin Yang

Zhenlin Yang

Singapore Management University

Yiu Kuen Tse

Singapore Management University - School of Social Sciences

Date Written: 2007-12

Abstract

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.

Suggested Citation

Yang, Zhenlin and Tse, Yiu Kuen, Generalized LM Tests for Functional Form and Heteroscedasticity (2007-12). Econometrics Journal, Vol. 11, Issue 2, pp. 349-376, July 2008. Available at SSRN: https://ssrn.com/abstract=1158683 or http://dx.doi.org/10.1111/j.1368-423X.2008.00242.x

Zhenlin Yang (Contact Author)

Singapore Management University ( email )

School of Economics
90 Stamford Road
Singapore, 178903
Singapore
65 68280852 (Phone)
65 68280833 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/zlyang/

Yiu Kuen Tse

Singapore Management University - School of Social Sciences ( email )

469 Bukit Timah Road
Federal Building #02-05
Singapore, 259756
Singapore
+65 822-0257 (Phone)
+65 822-8081 (Fax)

HOME PAGE: http://staff.mysmu.edu/yktse/yktsehp.htm

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