Tests for time reversibility: a complementarity analysis

Since time reversibility (TR) is a necessary condition for an independent and identically distributed (iid) sequence, several tests for TR have been suggested to be applied as tests for model misspecification. In this paper, we analyze possible complementarities among two well known TR tests (Ramsey and Rothman's test, and Chen et al.'s test) in two situations: (1) the fitted model is a linear ARMA model when the true data generating process is a nonlinear-in-mean model (either threshold autoregressive or bilinear), and (2) the fitted model is a symmetric GARCH model but the true process belongs to the asymmetric GARCH family (either EGARCH or GJR). The results suggest that there are not significant complementarities among both tests, although moment restrictions do not allow applying always the most powerful test. (C) 2003 Elsevier B.V. All rights reserved.