Engle's (1982) lagrange multiplier autoregressive conditional heteroscedasticity
(ARCH-LM) test is used to detect a time-dependent phenomenon in the conditional volatility of the inflation rate.
A unified approach to the estimation of heteroscedasticity
However, models must not have heteroscedasticity
and autocorrelation problems if the results are to be reliable.
Moreover, the model also has problem of serial correction, has a unit root and heteroscedasticity
. Therefore, model 2 is not the suitable model to explain Malaysian Stock Market.
test is performed to test whether there are unequal variances of the residual to other observations on the regression model used (Robiyanto and Puryandani 2015, Robiyanto et al.
The regression is adjusted for heteroscedasticity
using White (1980).
In situations that accentuate the presence of heteroscedasticity
, the literature suggests that some appropriate changes of the response variable is searched, and/or covariate, in order to stabilize the variances, Box and Cox (1964), Atkinson (1985).
There is evidence of continuous variation in the variance of noise, an indication of seasonal heteroscedasticity
. This shows that volatility of the deseasonalized DAT residuals is not constant as assumed by Elias et al.
Prob>chi2 = 0.0000 Therefore null hypothesis was rejected which implies that heteroscedasticity
in Asset Returns: A New Approach." Econometrica.59: 2, pp.
Since in general we use time series data, we correct our standard errors for heteroscedasticity
and autocorrelation using the Newey and West (1987) adjustment.