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A nonparametric copula based test for conditional independence with applications to Granger causality

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  • BOUEZMARNI, Taoufik
  • ROMBOUTS, Jeroen

    ()
    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • TAAMOUTI, Abderrahim

Abstract

This paper proposes a new nonparametric test for conditional independence, which is based on the comparison of Bernstein copula densities using the Hellinger distance. The test is easy to implement because it does not involve a weighting function in the test statistic, and it can be applied in general settings since there is no restriction on the dimension of the data. In fact, to apply the test, only a bandwidth is needed for the nonparametric copula. We prove that the test statistic is asymptotically pivotal under the null hypothesis, establish local power properties, and motivate the validity of the bootstrap technique that we use in finite sample settings. A simulation study illustrates the good size and power properties of the test. We illustrate the empirical relevance of our test by focusing on Granger causality using financial time series data to test for nonlinear leverage versus volatility feedback effects and to test for causality between stock returns and trading volume. In a third application, we investigate Granger causality between macroeconomic variables

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009041.

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Date of creation: 01 Jun 2009
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Handle: RePEc:cor:louvco:2009041

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Keywords: nonparametric tests; conditional independence; Granger non-causality; Bernstein density copula; bootstrap; finance; volatility asymmetry; leverage effect; volatility feedback effect; macroeconomics;

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Cited by:
  1. Jesús Gonzalo & Abderrahim Taamouti, 2011. "The reaction of stock market returns to anticipated unemployment," Economics Working Papers we1145, Universidad Carlos III, Departamento de Economía.

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