A diagnostic m-test for distributional specification of parametric conditional heteroscedasticity models for financial data

Abstract

This paper proposes a convenient and generally applicable diagnostic m-test for checking the distributional specification of parametric conditional heteroscedasticity models for financial data such as the customary student-t GARCH Model. The proposed test is based on the moments of the probability integral transform of the estimated innovations of the assumed model. Monte-Carlo evidence indicates that our suggested test performs well both in terms of size and power