THE EFFECTS OF OUTLIERS ON THE TEST FOR SYMMETRY IN PRICE TRANSMISSION MODELS

Résumé

Monte Carlo experimentation is conducted to investigate the effects of outlier observations on the test of symmetry in the Houck and Granger and Lee asymmetric price transmission data generating process. The results of the Monte Carlo experimentation indicate that fewer outliers show little modification in the probability of Type I error rates for the test of symmetry in the Houck and Granger and Lee models. However, rejection frequencies of the true null hypothesis of symmetry rises with increase in the number of outliers in the data generating process. The simulation results indicate that the severity of outlier effects on the test of symmetry depends on sample size and the underlying asymmetric price transmission data generating process. With large amount of outliers and large sample size, the Houck's model detects more spurious asymmetries in the symmetric data generating process than the Granger and Lee model. These results confirm the claims of Douglas (2010) that outliers in the price data could generate asymmetric price response.

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