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A Unified Test for the AR Error Structure of an Autoregressive Model

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A direct application of autoregressive (AR) models with independent and identically distributed (iid) errors is sometimes inadequate to fit the time series data well. A natural alternative is further to… Click to show full abstract

A direct application of autoregressive (AR) models with independent and identically distributed (iid) errors is sometimes inadequate to fit the time series data well. A natural alternative is further to assume the model errors following an AR process, whose structure however has essential impacts on the statistical inferences related to the autoregressive models. In this paper, we construct a new unified test for checking the AR error structure based on the empirical likelihood method. The proposed test is desirable because its limit distribution is always chi-squared regardless of whether the autoregressive model is stationary or non-stationary, with or without an intercept term. Some simulations are also provided to illustrate the finite sample performance of this test. Finally, we apply the proposed test to a financial real data set.

Keywords: test; unified test; model; error structure; autoregressive model

Journal Title: Axioms
Year Published: 2022

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