Abstract
This paper develops a regression-based testing procedure for serial correlation in the presence of stochastic volatility. The asymptotic distribution of the test is derived, and the finite sample properties are investigated. Monte Carlo results shows that the test is reliable in terms of both size and power performances, when the underlying process is a log-linear stochastic volatility. Moreover, the test is superior to Woolridge's (1991) robust LM tests in terms of size in finite sample. Serial correlation tests were conducted for nominal returns of ten exchange rates, and indicated that there is a strong evidence of serial correlation for Yen/Dollar exchange rates.
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Asai, M. Testing for Serial Correlation in the Presence of Stochastic Volatility. Asia-Pacific Financial Markets 7, 321–337 (2000). https://doi.org/10.1023/A:1010093608857
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DOI: https://doi.org/10.1023/A:1010093608857