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A new test for non-linear hypotheses under distributional and local parametric misspecification

Author

Listed:
  • Bera Anil K.

    (Department of Economics, University of Illinois at Urbana-Champaign, Urbana, IL, USA)

  • Doğan Osman

    (Department of Economics, Istanbul Technical University, Istanbul, Türkiye)

  • Taşpınar Süleyman

    (Department of Economics, Queens College, New York, Flushing, USA)

Abstract

In this paper, we develop a new version of Rao’s score (RS) statistic for testing a non-linear hypothesis under both distributional and local parametric misspecification. Our suggested test statistic is constructed through a size correction approach so that it becomes robust to both types of misspecification. We establish the asymptotic properties of the robust test statistic and provide several examples to illustrate its implementation. We also investigate the finite sample properties of our test along with some other well-known tests through simulations. Our simulation results demonstrate that the new test statistic has good finite sample properties in terms of empirical size and power.

Suggested Citation

  • Bera Anil K. & Doğan Osman & Taşpınar Süleyman, 2023. "A new test for non-linear hypotheses under distributional and local parametric misspecification," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 27(5), pages 669-685, December.
    • Handle: RePEc:bpj:sndecm:v:27:y:2023:i:5:p:669-685:n:4
    DOI: 10.1515/snde-2022-0043
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