According to Hendry and Richard (1982), a final acceptable model should
satisfy several criteria (adapted slightly here). The model should:
● be logically plausible
● be consistent with underlying financial theory, including satisfying any
relevant parameter restrictions
●
satisfy several criteria (adapted slightly here). The model should:
● be logically plausible
● be consistent with underlying financial theory, including satisfying any
relevant parameter restrictions
●
●have regressors that are uncorrelated with the error term
● have parameter estimates that are stable over the entire sample
● have parameter estimates that are stable over the entire sample
have residuals that are white noise (i.e. completely random and exhibiting no patterns)
● be capable of explaining the results of all competing models and more.
● be capable of explaining the results of all competing models and more.
cass.city.ac.uk/__data/assets/…
ECONOMETRIC METHODOLOGY BY PROFESSOR HENDRY
Oxford bulletin of economics and statistics,48,3 1986.
ECONOMETRIC METHODOLOGY BY PROFESSOR HENDRY
Oxford bulletin of economics and statistics,48,3 1986.
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