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A Nonparametric Goodness-Of-Fit-Based Test For Conditional Heteroskedasticity, Liangjun Su, Aman Ullah

Research Collection School Of Economics

In this paper we propose a nonparametric test for conditional heteroskedasticity based on a new measure of nonparametric goodness-of-fit (R2). In analogy with the ANOVA tools for classical linear regression models, the nonparametric R2 is obtained for the local polynomial regression of the residuals from a parametric regression on some covariates. It is close to 0 under the null hypothesis of conditional homoskedasticity and stays away from 0 otherwise. Unlike most popular parametric tests in the literature, the new test does not require the correct specification of parametric conditional heteroskedasticity form and thus is able to detect all kinds of …