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Tests For Serial Dependence In Static, Non-Gaussian Factor Models

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  • Gabriele Fiorentini

    ()
    (Università di Firenze)

  • Enrique Sentana

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

We derive simple algebraic expressions for score tests of serial correlation in the levels and squares of common and idiosyncratic factors in static factor models with (semi) parametrically specified elliptical distributions even though one must generally compute the likelihood by simulation. We also robustify our Gaussian tests against non-normality. The orthogonality conditions resemble the orthogonality conditions of models with observed factors but the weighting matrices reflect their unobservability. Our Monte Carlo exercises assess the finite sample reliability and power of our proposed tests, and compare them to other existing procedures. Finally, we apply our methods to monthly US stock returns.

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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2012_1211.

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Date of creation: Oct 2012
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Handle: RePEc:cmf:wpaper:wp2012_1211

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Keywords: ARCH; Financial returns; Kalman filter; LM tests; Non-Gaussian state space models; Predictability.;

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  6. 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.
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