High moment partial sum processes of residuals in GARCH models and their applications
Abstract
Description
In this paper we construct high moment partial sum processes based on residuals of a GARCH model when the mean is known to be 0. We consider partial sums of $k$th powers of residuals, CUSUM processes and self-normalized partial sum processes. The $k$th power partial sum process converges to a Brownian process plus a correction term, where the correction term depends on the $k$th moment $μ_k$ of the innovation sequence. If $μ_k=0$, then the correction term is 0 and, thus, the $k$th power partial sum process converges weakly to the same Gaussian process as does the $k$th power partial sum of the i.i.d. innovations sequence. In particular, since $μ_1=0$, this holds for the first moment partial sum process, but fails for the second moment partial sum process. We also consider the CUSUM and the self-normalized processes, that is, standardized by the residual sample variance. These behave as if the residuals were asymptotically i.i.d. We also study the joint distribution of the $k$th and $(k+1)$st self-normalized partial sum processes. Applications to change-point problems and goodness-of-fit are considered, in particular, CUSUM statistics for testing GARCH model structure change and the Jarque--Bera omnibus statistic for testing normality of the unobservable innovation distribution of a GARCH model. The use of residuals for constructing a kernel density function estimation of the innovation distribution is discussed.
Published at http://dx.doi.org/10.1214/009053605000000534 in the Annals of Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical Statistics (http://www.imstat.org)
Published at http://dx.doi.org/10.1214/009053605000000534 in the Annals of Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical Statistics (http://www.imstat.org)