On Testing Shock Induced Asymmetries in Time Series

28 Pages Posted: 14 Oct 2015 Last revised: 2 Feb 2017

See all articles by Thomas Nebeling

Thomas Nebeling

University of Bonn - The Bonn Graduate School of Economics

Nazarii Salish

Charles III University of Madrid - Department of Economics

Date Written: February 1, 2017

Abstract

This paper develops a Lagrange multiplier test statistic and its variants to test for the null hypothesis of no asymmetric effects of shocks on time series. In asymmetric time series models that allow for different responses to positive and negative past shocks the likelihood functions are, in general, non-differentiable. By making use of the theory of generalized functions Lagrange multiplier type tests and the resulting asymptotics are derived. The test statistics possess standard asymptotic limiting behavior under the null hypothesis. Monte Carlo experiments illustrate the accuracy of the asymptotic approximation and show that conventional model selection criteria can be used to estimate the required lag length.

Keywords: Time series, asymmetry, nonlinearity, likelihood non-differentiability, Lagrange multiplier test

JEL Classification: C12, C22

Suggested Citation

Nebeling, Thomas and Salish, Nazarii, On Testing Shock Induced Asymmetries in Time Series (February 1, 2017). Available at SSRN: https://ssrn.com/abstract=2672999 or http://dx.doi.org/10.2139/ssrn.2672999

Thomas Nebeling

University of Bonn - The Bonn Graduate School of Economics ( email )

Adenauerallee 24-26
Bonn, D-53113
Germany

Nazarii Salish (Contact Author)

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

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