Regression model
ARCH-LM Test for Volatility Clustering
The ARCH-LM test is Robert Engle's (1982) Lagrange multiplier diagnostic for autoregressive conditional heteroscedasticity in the residuals of a fitted time-series model. It checks whether the error variance changes over time and clusters into calm and turbulent periods, and it is the standard pre-test run before fitting a GARCH-family volatility model.
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Sources
- Engle, R. F. (1982). Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica, 50(4), 987-1007. DOI: 10.2307/1912773 ↗
- Lee, J. H. H. (1991). A Lagrange Multiplier Test for GARCH Models. Economics Letters, 37(3), 265-271. DOI: 10.1016/0165-1765(91)90221-6 ↗