I am currently writing my Master-Thesis and got a problem, which I have been trying to solve for the last three days.
I have to conduct a Cochrane-Orcutt Regression, in order to adequately deal with autocorrelationd and GARCH-Effects.
My Professor said that I have to test for Common Factor Restrictions, preferably using a Wald-Test. Furthermore he mentioned that the common factor restircion must hold if the AR(1) process is to be chosen in lieu of a more general model.
The paper I am writing about concludes that the common factor restriction could not be rejected in any case and then carries on with the Cochrane-Orcutt regression.
I am completely lost tackling this problem, though I am not a newbie I really could need some help.
Since I am studing in the UK and currently life in Germany, the face-to-face communication is problematic.
Help or links are much appreciated !