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Exact Skewness-Kurtosis Tests for Multivariate Normality and Goodness-of-Fit in Multivariate Regressions with Application to Asset Pricing Models

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Author Info
Jean-Marie Dufour
Lynda Khalaf
Marie-Claude Beaulieu

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Abstract

We study the problem of testing the error distribution in a multivariate linear regression (MLR) model. The tests are functions of appropriately standardized multivariate least squares residuals whose distribution is invariant to the unknown cross-equation error covariance matrix. Empirical multivariate skewness and kurtosis criteria are then compared with a simulation-based estimate of their expected value under the hypothesized distribution. Special cases considered include testing multivariate normal and stable error distributions. In the Gaussian case, finite-sample versions of the standard multivariate skewness and kurtosis tests are derived. To do this, we exploit simple, double and multi-stage Monte Carlo test methods. For non-Gaussian distribution families involving nuisance parameters, confidence sets are derived for the nuisance parameters and the error distribution. The tests are applied to an asset pricing model with observable risk-free rates, using monthly returns on New York Stock Exchange (NYSE) portfolios over 5-year subperiods from 1926 to 1995. Copyright 2003 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1046/j.0305-9049.2003.00085.x
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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 65 (2003)
Issue (Month): s1 (December)
Pages: 891-906
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Handle: RePEc:bla:obuest:v:65:y:2003:i:s1:p:891-906

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dufour, Jean-Marie & Kiviet, Jan F., 1996. "Exact tests for structural change in first-order dynamic models," Journal of Econometrics, Elsevier, vol. 70(1), pages 39-68, January. [Downloadable!] (restricted)
  2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  3. Kilian, Lutz & Demiroglu, Ufuk, 2000. "Residual-Based Tests for Normality in Autoregressions: Asymptotic Theory and Simulation Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 40-50, January.
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  5. Affleck-Graves, John & McDonald, Bill, 1989. " Nonnormalities and Tests of Asset Pricing Theories," Journal of Finance, American Finance Association, vol. 44(4), pages 889-908, September. [Downloadable!] (restricted)
  6. Shanken, Jay, 1990. "Intertemporal asset pricing : An Empirical Investigation," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 99-120. [Downloadable!] (restricted)
  7. Berk, Jonathan B., 1997. "Necessary Conditions for the CAPM," Journal of Economic Theory, Elsevier, vol. 73(1), pages 245-257, March. [Downloadable!] (restricted)
  8. Nielsen, Lars Tyge, 1990. "Existence of equilibrium in CAPM," Journal of Economic Theory, Elsevier, vol. 52(1), pages 223-231, October. [Downloadable!] (restricted)
  9. Allingham, Michael, 1991. "Existence Theorems in the Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 59(4), pages 1169-74, July. [Downloadable!] (restricted)
  10. Zhou, Guofu, 1995. "Small sample rank tests with applications to asset pricing," Journal of Empirical Finance, Elsevier, vol. 2(1), pages 71-93, March. [Downloadable!] (restricted)
  11. Dufour, Jean-Marie & Khalaf, Lynda & Bernard, Jean-Thomas & Genest, Ian, 2004. "Simulation-based finite-sample tests for heteroskedasticity and ARCH effects," Journal of Econometrics, Elsevier, vol. 122(2), pages 317-347, October. [Downloadable!] (restricted)
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  12. Fiorentini, Gabriele & Sentana, Enrique & Calzolari, Giorgio, 2003. "Maximum Likelihood Estimation and Inference in Multivariate Conditionally Heteroscedastic Dynamic Regression Models with Student t Innovations," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(4), pages 532-46, October.
  13. Dufour, Jean-Marie, 2006. "Monte Carlo tests with nuisance parameters: A general approach to finite-sample inference and nonstandard asymptotics," Journal of Econometrics, Elsevier, vol. 133(2), pages 443-477, August. [Downloadable!] (restricted)
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  14. BONTEMPS, Christian & MEDDAHI, Nour, 2002. "Testing Normality : A GMM Approach," Cahiers de recherche 2002-14, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
  15. Richardson, Matthew & Smith, Tom, 1993. "A Test for Multivariate Normality in Stock Returns," Journal of Business, University of Chicago Press, vol. 66(2), pages 295-321, April. [Downloadable!] (restricted)
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  17. DUFOUR, Jean-Marie & FARHAT, Abdeljelil & GARDIOL, Lucien, 1998. "Simulation-Based Finite-Sample Normality Tests in Linear Regressions," Cahiers de recherche 9811, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  18. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September. [Downloadable!] (restricted)
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  22. Dufour, Jean-Marie & Khalaf, Lynda, 2002. "Exact tests for contemporaneous correlation of disturbances in seemingly unrelated regressions," Journal of Econometrics, Elsevier, vol. 106(1), pages 143-170, January. [Downloadable!] (restricted)
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  23. Jobson, J. D. & Korkie, Bob, 1982. "Potential performance and tests of portfolio efficiency," Journal of Financial Economics, Elsevier, vol. 10(4), pages 433-466, December. [Downloadable!] (restricted)
  24. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March. [Downloadable!] (restricted)
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  27. Jean-Marie Dufour & Jan F. Kiviet, 1998. "Exact Inference Methods for First-Order Autoregressive Distributed Lag Models," Econometrica, Econometric Society, vol. 66(1), pages 79-104, January.
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  28. Dufour, Jean-Marie & Khalaf, Lynda, 2002. "Simulation based finite and large sample tests in multivariate regressions," Journal of Econometrics, Elsevier, vol. 111(2), pages 303-322, December. [Downloadable!] (restricted)
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  29. Shanken, Jay, 1986. " Testing Portfolio Efficiency When the Zero-Beta Rate Is Unknown: A Note," Journal of Finance, American Finance Association, vol. 41(1), pages 269-76, March. [Downloadable!] (restricted)
  30. Weron, Rafal, 1996. "On the Chambers-Mallows-Stuck method for simulating skewed stable random variables," Statistics & Probability Letters, Elsevier, vol. 28(2), pages 165-171, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oussama Chakroun & Georges Dionne & Amélie Dugas-Sampara, 2006. "Empirical Evaluation of Investor Rationality in the Asset Allocation Puzzle," Cahiers de recherche 0635, CIRPEE. [Downloadable!]
  2. Jean-Marie Dufour & Lynda Khalaf & Marie-Claude Beaulieu, 2003. "Finite-Sample Diagnostics for Multivariate Regressions with Applications to Linear Asset Pricing Models," CIRANO Working Papers 2003s-34, CIRANO. [Downloadable!]
    Other versions:
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