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Sign-based portmanteau test for ARCH-type models with heavy-tailed innovations

Chen, Min and Zhu, Ke (2013): Sign-based portmanteau test for ARCH-type models with heavy-tailed innovations.

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Abstract

This paper proposes a sign-based portmanteau test for diagnostic checking of ARCH-type models estimated by the least absolute deviation approach. Under the strict stationarity condition, the asymptotic distribution is obtained. The new test is applicable for very heavy-tailed innovations with only finite fractional moments. Simulations are undertaken to assess the performance of the sign-based test, as well as a comparison with other two portmanteau tests. A real empirical example for exchange rates is given to illustrate the practical usefulness of the test.

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