Size and Power of the RESET Test as Applied to Systems of Equations: A Bootstrap Approach

By Ghazi Shukur, Panagiotis Mantalos. 2004

151 citations recorded by the source corpus.

The size and power of various generalization of the RESET test for functional misspecification are investigated, using the “Bootsrap critical values”, in systems ranging from one to ten equations. The properties of 8 versions of the test are studied using Monte Carlo methods. The results are then compared with another study of Shukur and Edgerton (2002), in which they used the asymptotic critical values instead and found that in general only one version of the tests works well regarding size properties. In our study, when applying the bootstrap critical values, we find that all the tests exhibits correct size even in large systems. The power of the test is low, however, when the number of equations grows and the correlation between the omitted variables and the RESET proxies is small.

Subfields: Economics and Econometrics, Management Science and Operations Research, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/d850475e015d5805526e115e81770d2b8059f88e

How researchers see this paper

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In Economics and Econometrics

1. Rangan Gupta
2. Chiwei Su
3. M. Balcılar
4. Meng Qin
5. Tsangyao Chang
6. Xiao-lin Li
7. Yu-Chen Zhang
8. Paresh Kumar Narayan

In Management Science and Operations Research

1. Meng Qin
2. Chiwei Su
3. Yu-Chen Zhang
4. Tsangyao Chang
5. M. Balcılar
6. Rangan Gupta
7. Xiao-lin Li

In Sociology and Political Science

1. Meng Qin
2. Chiwei Su
3. Yu-Chen Zhang
4. Tsangyao Chang
5. M. Balcılar
6. Rangan Gupta
7. Xiao-lin Li

Citations in the corpus

• The Causal Relationship Between Economic Policy Uncertainty and Stock Returns in China and India: Evidence from a Bootstrap Rolling Window Approach (2016, methodology): “Nevertheless, Shukur and Mantalos (1997a) suggest that improvement (in terms of power and size) can be achieved by using the residual-based bootstrap (RB) method critical values.”
• The Essential Role of Pandemics: A Fresh Insight Into the Oil Market (2020, methodology): “To test our hypothesis, his paper applies the residual-based bootstrap (RB)-based modified-likelihood ratio (LR) statistics (Shukur & Mantalos, 1997, 2000).”