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The Robustness of the RESET Test to Non-Normal Error Terms

Mantalos, Panagiotis LU (2007) In Computational Economics 30(4). p.393-408
Abstract
In systems ranging from 1 to 10 equations, the size and power of various generalization of the Regression Specification Error Test (RESET) test for functional misspecification are investigated, using both the assymptotic and the bootsrap critical values. Furthermore, the robusteness of the RESET test to various numbers of non-normal error terms has been investigated. The properties of eight versions of the test are studied using Monte Carlo methods. Using the assyptotic critical values together with normally distributed error terms,we find theRao’smultivariate F-test to be best among all other alternative testmethods (i.e.Wald, Lagrange Multiplier and Likelihood Ratio). In the cases of heavy tailed error terms, short or long tailed errors,... (More)
In systems ranging from 1 to 10 equations, the size and power of various generalization of the Regression Specification Error Test (RESET) test for functional misspecification are investigated, using both the assymptotic and the bootsrap critical values. Furthermore, the robusteness of the RESET test to various numbers of non-normal error terms has been investigated. The properties of eight versions of the test are studied using Monte Carlo methods. Using the assyptotic critical values together with normally distributed error terms,we find theRao’smultivariate F-test to be best among all other alternative testmethods (i.e.Wald, Lagrange Multiplier and Likelihood Ratio). In the cases of heavy tailed error terms, short or long tailed errors, however, the properties of the bestRao test deteriorates especially in larg systems of equations.By using the bootstrap critical values, we find that the Rao test exhibits correct size but still slightlyunder reject the null hypothesis in cases when the error terms are short tailed. The powerof the test is low, however, in small samples and when the number of equations grows. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Small sample properties, Non-normal error terms, Systemwise test of functional mispecification. Non Systemwise test of functional misspecification
in
Computational Economics
volume
30
issue
4
pages
393 - 408
publisher
Springer
external identifiers
  • scopus:34948820662
ISSN
0927-7099
DOI
10.1007/s10614-007-9100-8
language
English
LU publication?
yes
id
b83dc277-c92b-4cb8-8e09-2972dc731ade (old id 1387043)
date added to LUP
2009-04-20 12:27:24
date last changed
2017-01-01 06:46:43
@article{b83dc277-c92b-4cb8-8e09-2972dc731ade,
  abstract     = {In systems ranging from 1 to 10 equations, the size and power of various generalization of the Regression Specification Error Test (RESET) test for functional misspecification are investigated, using both the assymptotic and the bootsrap critical values. Furthermore, the robusteness of the RESET test to various numbers of non-normal error terms has been investigated. The properties of eight versions of the test are studied using Monte Carlo methods. Using the assyptotic critical values together with normally distributed error terms,we find theRao’smultivariate F-test to be best among all other alternative testmethods (i.e.Wald, Lagrange Multiplier and Likelihood Ratio). In the cases of heavy tailed error terms, short or long tailed errors, however, the properties of the bestRao test deteriorates especially in larg systems of equations.By using the bootstrap critical values, we find that the Rao test exhibits correct size but still slightlyunder reject the null hypothesis in cases when the error terms are short tailed. The powerof the test is low, however, in small samples and when the number of equations grows.},
  author       = {Mantalos, Panagiotis},
  issn         = {0927-7099},
  keyword      = {Small sample properties,Non-normal error terms,Systemwise test of functional mispecification. Non

Systemwise test of functional misspecification},
  language     = {eng},
  number       = {4},
  pages        = {393--408},
  publisher    = {Springer},
  series       = {Computational Economics},
  title        = {The Robustness of the RESET Test to Non-Normal Error Terms},
  url          = {http://dx.doi.org/10.1007/s10614-007-9100-8},
  volume       = {30},
  year         = {2007},
}