What is an appropriate approach to testing for 'ARCH effects'?
A) Run a regression, collect the residuals, regress the squared residuals on their lags and conduct a hypothesis test to check whether the coefficients of the lagged squared residuals are equal to zero
B) Run a regression, collect the fitted values, regress the fitted values on their squared lags and conduct a hypothesis test to check whether the coefficients of the lagged squared fitted values are equal to zero
C) Employ White's test
D) All of the above

Question

Quizplus · Accepted Answer

Testing for ARCH (Autoregressive Conditional Heteroskedasticity) effects involves running a regression to obtain residuals, then regressing the squared residuals on their own lags, and finally conducting a hypothesis test to check if the coefficients of these lagged squared residuals are significantly different from zero. This process is aimed at identifying any patterns in the volatility (heteroskedasticity) that are dependent on past values.

What Is an Appropriate Approach to Testing for 'ARCH Effects