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Testing For Embeddability By Stationary Reversible Continuous-Time Markov Processes

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Author Info
Florens, Jean-Pierre
Renault, Eric
Touzi, Nizar
Abstract

Given an observation of a discrete-time process {Yi,i = 0...n} assumed to be Markov, stationary, and time reversible, we develop a (conservative) test procedure of embeddability by a continuous-time reversible Markov process. The test statistic is derived from a set of moment inequality restrictions implied by the spectral properties of such continuous-time processes. Most interesting is that the embeddability condition of interest is a direct extension of the well-known embeddability problem by a two-state Markov chain. Empirical experiments show that the embeddability hypothesis is rejected more frequently for exchange rate daily data than for stock indices data.

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Publisher Info
Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 14 (1998)
Issue (Month): 06 (December)
Pages: 744-769
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:etheor:v:14:y:1998:i:06:p:744-769_14

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  1. Nour Meddahi & Éric Renault, 2000. "Temporal Aggregation of Volatility Models," CIRANO Working Papers 2000s-22, CIRANO. [Downloadable!]
  2. Xiaohong Chen & Lars Peter Hansen & Jose A. Scheinkman, 2009. "Principal components and the long run," CeMMAP working papers CWP07/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
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  3. Nour Meddahi, 2001. "An Eigenfunction Approach for Volatility Modeling," CIRANO Working Papers 2001s-70, CIRANO. [Downloadable!]
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