%0 Generic
%A Conrad, Christian
%A Schienle, Melanie 
%C Heidelberg
%D 2015
%F heidok:19006
%K Volatility Component Models, LM test, Long-term Volatility.
%R 10.11588/heidok.00019006
%T Misspecification Testing in GARCH-MIDAS Models
%U https://archiv.ub.uni-heidelberg.de/volltextserver/19006/
%V 0597
%X We develop a misspecification test for the multiplicative two-component GARCH-MIDAS model suggested in Engle et al. (2013). In the GARCH-MIDAS model a short-term unit variance GARCH component fluctuates around a smoothly time-varying long-term component which is driven by the dynamics of an explanatory variable. We suggest a Lagrange Multiplier statistic for testing the null hypothesis that the variable has no explanatory power. Hence, under the null hypothesis the long-term component is constant and the GARCH-MIDAS reduces to the simple GARCH model. We derive the asymptotic theory for our test statistic and investigate its finite sample properties by Monte-Carlo simulation. The usefulness of our procedure is illustrated by an empirical application to S&P 500 return data.