Jarque-Bera Test of Normality

Lars Forsberg

Uppsala University

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Normality

Normality is a important assumption for the regression analysis

Especially for small samples, the inference procedures depends upon the
normality assumptions of the residuals, all our
Con…dence intervals
Z/t-tests
F-tests
would not be valid is the normality assumption was violated.

So, it is important to know/…nd out if the residuals really are normally

distributed (at least for small samples).

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Normality tests

Testing for normality:

A normality test answers the question:
Does this variable follow a normal distribution?
Is it likely that these data comes from a normal distribution

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The normal distribution

We formulate the hypotheses

H0 : Data is normal

H1 : Data is NOT normal

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The normal distribution

Since the assumption of normality is important for many areas of

statistics, there are a large number of (univariate) normality test, with
di¤erent ways of checking if "Data is normal"
Jarque-Bera test
Kolmogorov’s test
Andersson Darling test

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The normal distribution

The normal distribution has two important properties, no matter what the
parameters µ and σ2 are, we have
It is symmetrical
It has Kurtosis three
Let’s take a look at these measures.

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Measures of a distribution

Recall the moments

First
Second
Third
Fourth

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The normal distribution

From these moments we form di¤erent measures of the distribution, such

as
Mean (…rst moment itself)
Variance (Second central moment itself)
Skewness = f(third moment)
Kurtosis = f(fourth moment)

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Measures of a distribution - Skewness

Skewness measures the degree of symmetry in the distribution.

[ E (Y µ )3 ]
Skewness =
[E (Y µ)2 ]3/2

[ E (Y µ )3 ]
Skewness =
(σ2 )3/2

[ E (Y µ )3 ]
Skewness = σ3

(Note that the measure of skewness

given in Gujarati Appendix A
page 770 is squared skewness.)

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Measures of a distribution - Skewness

The sample estimate of skewness is

3
nΣ
1
Yi Y
\ =
Skewness
σY3
b

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Measures of a distribution - Skewness

So we have
Population Sample

3
nΣ
1
[ E (Y µ )3 ]
\ = (Y i Y)
Skewness = σ3
Skewness σY3
b

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Measures of a distribution - Skewness

Properties of the Skewness measure:

1 Zero skewness implies a symmetric distribution (the Normal,
t-distribution)
2 Positive skewness means that the distribution has a long right tail,
its skewed to the right.
3 Negative skewness means that the distribution has a long left tail, its
skewed to the left.

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Measures of a distribution - Kurtosis

For the Kurtosis, we have

E (Y µ )4
Kurtosis =
[E (Y µ )2 ]2

E (Y µ )4
Kurtosis =
[ σ 2 ]2

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Measures of a distribution - Kurtosis

The sample estimate of Kurtosis is

4
nΣ
1
Yi Y
\ =
Kurtosis
σ 2 )2
(b

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Measures of a distribution - Kurtosis

So, we have

Population Sample

4
nΣ
1
E (Y µ )4 \ = (Y i Y)
Kurtosis = Kurtosis
[E (Y µ )2 ]2 σ 2 )2
(b

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Measures of a distribution - Kurtosis

The normal distribution has Kurtosis=3. The measure (Kurtosis 3) is

known as the ”Excess Kurtosis”, i.e:

E (Y µ )4
Excess Kurtosis = 2
3
[E (Y µ )2 ]

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Measures of a distribution - Kurtosis

Properties of the Kurtosis measure:

1 A distribution with kurtosis=3 is said to be mesokurtic .
2 A distribution with kurtosis>3 is said to be leptokurtic or fat-tailed.
1 For example: Stock returns are known to be leptokurtic, i.e more
"peaked" and ”fat-tailed” than the normal distribution.
3 A distribution with kurtosis<3 is said to be platykurtic

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Jarque-Bera test

The Jarque-Bera test uses these two (statistical) properties of the normal
distribution, namely:
The Normal distribution is symmetric around its mean
(skewness = zero)
The Normal distribution has kurtosis three, or
Excess kurtosis = zero

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Normality tests - The Jarque-Bera test

The Jarque-Bera test tests the hypotheisis

H0 : Data is normal

H1 : Data is NOT normal

using the test statistic

2 2
3
2 \
\
6 Skewness Kurtosis 3 7
JBTest Statistic = n4 + 5
6 24

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Normality tests - The Jarque-Bera test

Let

\
S = Skewness
and
\
K = Kurtosis

then " #
S2 (K 3)2
JBTest Statistic =n +
6 24

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Normality tests - The Jarque-Bera test - Intuition
Normal distribution

S =0
K =3

So, the Jarque-Bera test-statistic would be

" #
S2 (K 3)2
JBTest Statistic = n +
6 24

" #
02 (3 3)2
=n +
6 24

JBTest Statistic =0

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Normality tests - The Jarque-Bera test - Intuition

So, in the best of worlds, if data came from a normal distriubtion, the test
statistic would assume the value zero.

Now, we have sample variation, recall

\ is a function of data, i.e. a random variable
Skewness
\ is a function of data, i.e. a random variable, so
Kurtosis
h 2 i
(K 3 )2
JBObs = n S6 + 24 is a random variable, and follows what
distribution?

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Normality tests - The Jarque-Bera test - Implementation

Under H0 ,if the hypothesis of normality is true, the test statistic is

asymptotically (when n increases) chi-squared distributed with 2 df. That
is
" #
S2 (K 3)2
JBTest Statistic = n +
6 24

JBTest Statistic χ2 (2)

JBTest Statistic χ22

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Normality tests - The Jarque-Bera test - Implementation

How to do a Jarque-Bera test in practice

1 Calculate the skewness in the sample.
2 Calculate the kurtosis in the sample.
3 Calculate the Jarque-Bera test statistic
4 Compare the Jarque-Bera test statistic with the critical values in the
chi-square table, 2 df.

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Normality tests - The Jarque-Bera test - Example

Wagei = β 1 + β 2 Educ + ui

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Normality tests - The Jarque-Bera test - Example

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Normality tests - The Jarque-Bera test - Example

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Normality tests - The Jarque-Bera test - Example

1. Hypotheses:

H0 : The error term is normal distributed,

H1 : The error term is not normal distributed

2. Signi…cance level: α = 0.05

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Normality tests - The Jarque-Bera test - Example

3. Statistics, estimators:
3
nΣ
1
Yi Y
\ =
S = Skewness
σY3
b

4
nΣ
1
Yi Y
\ =
K = Kurtosis
σ 2 )2
(b

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Normality tests - The Jarque-Bera test - Example

4. Assumptions
n large

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Normality tests - The Jarque-Bera test - Example

5. Test statistic " #

S2 (K 3)2
JBObs =n +
6 24
which under the null (asymptotically) follows a chisquare distribution with
2 df.

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Normality tests - The Jarque-Bera test - Example

6. Distrubtion under the null rejection rule:

We reject H0 if χ22,1 α = 5.99 < JBObs

or JBObs > χ22,1 α = 5.99

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Normality tests - The Jarque-Bera test - Example

7. Calculations
" #
1.0832832 (5.986976 3)2
JBObs = 935 +
6 24
= 530.45

χ22,1 α = 5.99 < 530.45 = JBObs

or
JBObs = 530.45 > χ22,1 α = 5.99

8. At 5% signi…cance level we reject the null of that the disturbance

term is normally distributed.

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