Selecting optimal lag order in Ljung–Box test

By Hossein Hassani, Mohammad Reza Yeganegi. 2020

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Abstract Theoretical results and empirical evidences indicate that the Ljung–Box test is sensitive to the number of lags ( H ) involved in the test. In time series literature, different values are suggested for H . This paper is concerned with the selecting optimal number of lags H in Ljung–Box test such that the actual size of the test does not exceed the test’s level while the power of the test does not fall under specific value. A simulation study is employed to investigate the effect of selecting an improper values of H on the actual size and power of the Ljung–Box test. The results confirm that an optimal value of H depends on the time series’ length as well as the test’s level. The comparison results with currently used approaches in the literature confirm that the commonly used techniques are not suggesting a proper value for H .

Subfields: Economics and Econometrics, Finance, Statistics and Probability

View Paper: https://www.semanticscholar.org/paper/3191225b51118141720abc114f22a9a8acf55f41