[R-SIG-Finance] Lags in ArchTest

babel at centrum.sk babel at centrum.sk
Tue Feb 22 15:32:58 CET 2011


Dear researchers

I would like to ask you, what is the correct number of Lags in ARCH LM Test?  I am referring to ArchTest in FinTS package, but other ArchTest (such as the one in Eviews) provide same results. In many time series, when I choose Lags between 1:5 the p.value is usually higher than 0.05, but with increasing of Lags, p.value becomes smaller. So how to do the correct decision if for lag=1, the time series looks homoscedastic(NO ARCH Effects), but for lags=5 and lags=12 result is heteroscedastic (presence of ACH) or reverse?
Thank you

Sincerely Jan



#Example code
library(quantmod) 
library(FinTS)
getSymbols("XPT/USD",src="oanda")
ret_xptusd<-as.numeric(diff(log(XPTUSD)))
ones<-rep(1,500)
ols<-lm(ts(ret_xptusd)~ones);ols
residuals<-ols$residuals

ArchTest(residuals,lags=1)   # p-value = 0.008499
ArchTest(residuals,lags=5)   # p-value = 0.08166
ArchTest(residuals,lags=12)  #p-value = 0.2317



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