Distribution-free specification tests of conditional models
AbstractThis article proposes a class of asymptotically distribution-free specification tests for parametric conditional distributions. These tests are based on a martingale transform of a proper sequential empirical process of conditionally transformed data. Standard continuous functionals of this martingale provide omnibus tests while linear combinations of the orthogonal components in its spectral representation form a basis for directional tests. Finally, Neyman-type smooth tests, a compromise between directional and omnibus tests, are discussed. As a special example we study in detail the construction of directional tests for the null hypothesis of conditional normality versus heteroskedastic contiguous alternatives. A small Monte Carlo study shows that our tests attain the nominal level already for small sample sizes.
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Conditional models; Martingale transformation; Sequential empirical process; Specification tests;
Other versions of this item:
- Delgado, Miguel A. & Stute, Winfried, 2008. "Distribution-free specification tests of conditional models," Journal of Econometrics, Elsevier, vol. 143(1), pages 37-55, March.
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