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Nonparametric specification tests for conditional duration models

  • Fernandes, Marcelo
  • Grammig, Joachim

This paper deals with the testing of autoregressive conditional duration (ACD) models by gauging the distance between the parametric density and hazard rate functions implied by the duration process and their non-parametric estimates. We derive the asymptotic justification using the functional delta method for fixed and gamma kernels, and then investigate the finite-sample properties through Monte Carlo simulations. Although our tests display some size distortion, bootstrapping suffices to correct the size without compromising their excellent power. We show the practical usefulness of such testing procedures for the estimation of intraday volatility patterns.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 127 (2005)
Issue (Month): 1 (July)
Pages: 35-68

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Handle: RePEc:eee:econom:v:127:y:2005:i:1:p:35-68
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