Detecting overdispersion in INARCH(1) processes

Abstract

A statistical test for the degree of overdispersion of count data time series based on the empirical version of the (Poisson) index of dispersion is considered. The test design relies on asymptotic properties of this index of dispersion, which in turn have been analyzed for time series stemming from a compound Poisson (Poisson‐stopped sum) INAR(1) model. This approach is extended to the popular Poisson INARCH(1) model, which exhibits unconditional overdispersion but has an (equidispersed) conditional Poisson distribution. The asymptotic distribution of the index of dispersion if applied to time series stemming from such a model is derived. These results allow us to investigate the ability of the dispersion test to discriminate between Poisson INAR(1) and INARCH(1) models. Furthermore, the question is considered if the index of dispersion could be used to test the null of a Poisson INARCH(1) model against the alternative of an INARCH(1) model with additional conditional overdispersion.