ARCH Effect Test

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.

  1. Select an empty cell to store the ARCH Effect tests results table.
    select an empty cell where you wish the ARCH Effect Wizard to generate the tests results in your excel worksheet
  2. 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”.
    ARCH Effect Test icon in Excel 2007/2010
  3. The ARCH Effect Test dialog box appears.
  4. Select the cells range for the input data.
    General Tab in NumXL ARCH Effect Test Wizard
  5. Click the “Options” tab and pick a maximum lag order for this test.
    Options tab in NumXL ARCH Effect Test Wizard
  6. If your data include one or more intermediate observations with missing values, click the “Missing Values” tab.
    Missing Values treatment tab in NumXL ARCH Effect Dialog
  7. Click “OK”.
  8. The test wizard generates the ARCH Effect Test statistics for different lag scenarios.
    ARCH Effect Test Output as generated by NumXL Functions and Wizards

 

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