Advanced

An Examination of the Robustness of the Vector Autoregressive Granger-Causality Test in the Presence of GARCH and Variance Shifts

Mantalos, Panagiotis LU (2007) In International Review of Business Research Papers 3(5). p.280-296
Abstract
The properties of the Granger-causality test in stationary and stable Vector Autoregressive (VAR) models are studied with different types of volatility processes imposed on the unconditional variance. For this test, it is examined how the size and power properties are affected by different magnitudes of GARCH processes and by structural shifts in the volatility. The study has been conducted by means of Monte Carlo simulations for different sample sizes. Our analysis reveals that substantial GARCH effects influence the size properties of the Granger-causality test, especially in small samples. The power functions of the test are usually slightly lower in the presence of GARCH disturbances compared to the case of white noise residuals. When... (More)
The properties of the Granger-causality test in stationary and stable Vector Autoregressive (VAR) models are studied with different types of volatility processes imposed on the unconditional variance. For this test, it is examined how the size and power properties are affected by different magnitudes of GARCH processes and by structural shifts in the volatility. The study has been conducted by means of Monte Carlo simulations for different sample sizes. Our analysis reveals that substantial GARCH effects influence the size properties of the Granger-causality test, especially in small samples. The power functions of the test are usually slightly lower in the presence of GARCH disturbances compared to the case of white noise residuals. When a structural variance break is imposed, the size problem is rather severe, and the power functions are lower compared to the case with the pure GARCH processes. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Causality test, GARCH, Size and Power, structural change
in
International Review of Business Research Papers
volume
3
issue
5
pages
280 - 296
publisher
World Business Institute
language
English
LU publication?
yes
id
a078f4d4-6482-4ff6-8c3b-cb8594fcb219 (old id 1387061)
date added to LUP
2009-04-20 12:27:24
date last changed
2016-04-16 07:55:42
@article{a078f4d4-6482-4ff6-8c3b-cb8594fcb219,
  abstract     = {The properties of the Granger-causality test in stationary and stable Vector Autoregressive (VAR) models are studied with different types of volatility processes imposed on the unconditional variance. For this test, it is examined how the size and power properties are affected by different magnitudes of GARCH processes and by structural shifts in the volatility. The study has been conducted by means of Monte Carlo simulations for different sample sizes. Our analysis reveals that substantial GARCH effects influence the size properties of the Granger-causality test, especially in small samples. The power functions of the test are usually slightly lower in the presence of GARCH disturbances compared to the case of white noise residuals. When a structural variance break is imposed, the size problem is rather severe, and the power functions are lower compared to the case with the pure GARCH processes.},
  author       = {Mantalos, Panagiotis},
  keyword      = {Causality test,GARCH,Size and Power,structural change},
  language     = {eng},
  number       = {5},
  pages        = {280--296},
  publisher    = {World Business Institute},
  series       = {International Review of Business Research Papers},
  title        = {An Examination of the Robustness of the Vector Autoregressive Granger-Causality Test in the Presence of GARCH and Variance Shifts},
  volume       = {3},
  year         = {2007},
}