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

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Author Info
Taoufik Bouezmarni
Jeroen V. K. Rombouts ()
Abderrahim Taamouti ()

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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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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we093419.

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Date of creation: Jun 2009
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Handle: RePEc:cte:werepe:we093419

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Related research
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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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Other
G1 - Financial Economics - - General Financial Markets
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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