ugarchfit() ARCH LM tests contradict ArchTest()?

Sat, Feb 11, 2012 2:07 PM

Hi Brian,

Testing on the ARMA (or other filtration) residuals should be done prior 
to the estimation to test for the presence of ARCH effects. Once a GARCH 
model is fitted, then you need to incorporate this information by using 
the residuals standardized by the conditional sigma of the GARCH model. 
The details of all tests used in the rugarch package are detailed in the 
vignette.

Regards,
Alexios

On 11/02/2012 21:58, Brian Askins wrote:

Thank you for posting that, Alexios. I was working on code for an
example (because my current code is homework code so I cannot post it)
but you showed me what was different. I was doing the ArchTest on the
residuals, not the standardized residuals. This makes much more sense now.

My apologies for not including code in the first post, I'll be sure to
include a working example in all future posts.

Thanks again everyone, I'll let the other people in my class know what
was going on with this.

--Brian

On Sat, Feb 11, 2012 at 1:45 PM, alexios <alexios at 4dscape.com
<mailto:alexios at 4dscape.com>> wrote:

    I find that they agree completely:

    library(rugarch)
    data(dji30ret)
    fit = ugarchfit(ugarchspec(),__dji30ret[,1])

    # The ARCH LM Test on the squared standardized residuals shows:
    ARCH LM Tests
    ------------------------------__------
                 Statistic DoF P-Value
    ARCH Lag[2]     0.6795   2  0.7119
    ARCH Lag[5]     1.9091   5  0.8616
    ARCH Lag[10]    4.2709  10  0.9343

    z = residuals(fit)/sigma(fit)

    library(FinTS)
    ArchTest(z, 2)
    Chi-squared = 0.6795, df = 2, p-value = 0.7119
    ArchTest(z, 10)
    Chi-squared = 4.2709, df = 10, p-value = 0.9343

    i.e. EXACTLY the same.

    Regards,
    Alexios


    On 11/02/2012 21:14, Brian G. Peterson wrote:

        On Sat, 2012-02-11 at 12:50 -0800, Brian Askins wrote:

            Hello all,

            My name is Brian Askins and I'm a student at the University
            of Washington
            currently working on an M.S. in computational finance. Our
            current homework
            is to fit a few GARCH models and do some diagnostic tests on
            them, one of
            which is an LM test on the residuals to make sure there is
            no more
            autocorrelation among them. If I use the ArchTest() function
            from the FinTS
            package the results make sense and match (to a degree of
            error) a manual
            test that I coded to check this. However, the results from
            that are
            completely different from the results shown in the output of
            ugarchfit()
            under the section "ARCH LM Tests." This also confused other
            people in the
            class, including the TA. So can anyone tell me a little more
            information
            about this discrepancy? I can't find any information on the
            LM test
            performed in ugarchfit() from any of the documentation in
            the rugarch
            package. Any help or pointers on where to find this
            information would be
            greatly appreciated! Thanks!


        Brian,

        It would help everyone out if you followed the posting guide and
        took
        some time to create a reproducible example that demonstrates
        what you're
        talking about.  From your question, you've obviously already
        written the
        code, and the data is probably readily available, so roll it up,
        comment
        it, and be specific about the differences that are confusing you.

        Regards,

            - Brian

ugarchfit() ARCH LM tests contradict ArchTest()?

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