As my previous questions I'm trying to solve a problem with my stocks tests. I tried Breusch-Pagan test for heteroscedasticity but some residuals still pass these tests.
My procedure is:
Get two stocks prices (I have a matrix with two columns that represent the price lists)
I do a linear regression, like:
lm(prices[,1] ~ prices[,2])
Then I test the residuals of the linear regression with Unit Root tests (PP and KPSS)
After these tests I do Breusch-Pagan test because I only need to work with stocks that have constant variance during all the period. I do:
bptest(prices[,1] ~ prices[,2])
Ok, now I still get strange results, with strange i mean that when i plot the residuals i see that the variance is not constant (take a look at the chart below). So now, I need to understand how better test is the variance is constant.
I read someone use GARCH (1,1) but I never used it, could someone exmplain it or maybe give me other tests to try?