Ch14 Full Test Bank Time-Varying Volatility And Arch Models - Principles of Econometrics 5e Complete Test Bank by R. Carter Hill. DOCX document preview.
File: Chapter 14 – Time-Varying Volatility and ARCH Models
Multiple Choice
1. What does ARCH abbreviate?
a. Autoregressive Conditional Heteroskedastic
b. Alternative Regression Creating Homoscedasticity
c. All Regression Characteristic Hierarchy
d. Abbreviated Regular Consistent Hypothesis
2. Suppose there is a series,
, modeled by the following three equations:
This model is classified as _____.
a. An ARCH(1)
b. An ECM
c. A GARCH(1)
d. A VAR
3. Suppose there is a series,, modeled by the following three equations:
Equation 2 indicates the error term is _____.
a. normally distributed
b. conditionally normal
c. bi-modally distributed
d. binomially distributed
4. When a distribution shows leptokurtic properties, this means that, when compared to a normal distribution, there are _____ observations around the mean and _____ observations in the tails.
a. more; more
b. more; less
c. less; more
d. less; less
5. What type of model is most useful for modeling volatility of financial data?
a. VEC
b. VAR
c. ARCH(1)
d. ARDL(1)
6. In an ARCH(1) model E(yt|xt-1) has a _____ distribution while E(yt) has a _____ distribution.
a. leptokuric; normal
b. binomial; leptokuric
c. normal; binomial
d. normal; leptokuric
7. Which test is commonly performed to check for the presence of ARCH effects?
a. Chow test
b. Wald test
c. LM
d. F-test
8. If you reject the null hypothesis when testing for ARCH effects, what should you conclude?
a. The variance changes over time
b. The variance is constant
c. The mean is constant
d. The mean varies over time
9. How are ARCH models estimated?
a. OLS
b. 2SLS
c. GLS
d. ML
10. A model with the following conditional variance function is what type of model?
a. ARCH(3)
b. ARDL(2)
c. ARDL(3)
d. VAR
11. In a GARCH(p,q) model, what does the p indicate?
a. The number of lagged h terms
b. The number of lagged e2 terms
c. The number of endogenous variables in a system
d. The number of excluded exogenous variables that can be instruments
12. In a GARCH(p,q) model, what does the q indicate?
a. The number of lagged h terms
b. The number of lagged e2 terms
c. The number of endogenous variables in a system
d. The number of excluded exogenous variables that can be instruments
13. What is the primary advantage of a GARCH model rather than an ARCH model?
a. Fewer parameters to be estimated
b. Fewer assumptions required
c. Normally distributed estimators
d. Lower variance of estimates
14. Consider the conditional variance function of a GARCH(1, 1) model: 
. For this process to be stationary, which of the following conditions must hold?
a. 
b. 
c. 
d. 
15. What does the T in T-ARCH stand for and when is it used?
a. Threshold, used to model asymmetric effects
b. Two-stage, used to model indirect effects
c. Time, used to model time varying heteroskedasticity
d. Total, used to model total variance
16. What does it mean for a model to be GARCH-in-mean?
a. The mean and variance both move over time but are independent.
b. The mean is constant but variance changes over time.
c. The mean increases while variance is constant.
d. The mean increases with the variance.
17. The generally observed negative correlation between an asset return and its volatility changes is known as the _____ effect.
a. mean-reversion
b. leverage
c. fixed
d. random
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