Description
Title: Fitting a Two Phase Threshold Multiplicative Error Model
Abstract. The class of multiplicative error models are particularly suited to model nonnegative time series such as financial durations, realized volatility, and squared returns. Threshold models are also known to play an important role in time series analysis. In this talk we shall present a lack-of-fit test for fitting a two-phase threshold model to the conditional mean function in a multiplicative error model. The proposed testing procedure can also be applied to a class of autoregressive conditional heteroscedastic threshold models. A simulation study shows some superiority of the proposed test over some commonly used existing tests. We shall illustrate the testing procedure by some data examples.