To examine a given time series for signs of the ARCH Effect, we conduct a statistical test for evidence of white noise (Ljung-Box Test) between the squared input time series.
Similar to the regular white noise test, the hypothesis in question is:
$$H_{o}: \rho_{1}=\rho_{2}=...=\rho_{m}=0 $$
$$H_{1}: \exists \rho_{k}\neq 0$$
NumXL provides an intuitive interface to help Excel users conduct an ARCH effect using several lag orders. In this tutorial, we’ll demonstrate the steps to perform a thorough ARCH test using NumXL functions and wizards in Excel.
Process
- Select an empty cell to store the ARCH Effect tests results table.
- Locate the Statistical Test (STAT TEST) icon in the toolbar (or menu in Excel 2003) and click on the down-arrow. When the drop-down menu appears, select “ARCH Effect Test”.
- The ARCH Effect Test dialog box appears.
- Select the cell range for the input data.
- Click the “Options” tab and pick a maximum lag order for this test.
- If your data include one or more intermediate observations with missing values, click the “Missing Values” tab.
- Click “OK”.
Output
The test wizard generates the ARCH Effect Test statistics for different lag scenarios.
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