Hello,
I was wondering, if we run a regression where we also specify a GARCH(1,1) for the error variance, and we find that both the arch and garch terms are insignificant, does that mean there is no advantage from using the garch specification? Or are there still benefits from allowing a non constant variance? What if the constant in the conditional variance equation is significant but the arch and garch terms aren't? Does that mean assuming a constant error variance is more appropriate?
I know I can test for arch effects but if I find no arch effects, is there no advantage whatsoever from using a garch specification?
Thanks!
I was wondering, if we run a regression where we also specify a GARCH(1,1) for the error variance, and we find that both the arch and garch terms are insignificant, does that mean there is no advantage from using the garch specification? Or are there still benefits from allowing a non constant variance? What if the constant in the conditional variance equation is significant but the arch and garch terms aren't? Does that mean assuming a constant error variance is more appropriate?
I know I can test for arch effects but if I find no arch effects, is there no advantage whatsoever from using a garch specification?
Thanks!
