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Specification tests of parametric dynamic conditional quantiles

  • Escanciano, Juan Carlos
  • Velasco, Carlos

This article proposes omnibus specification tests of parametric dynamic quantile models. In contrast to the existing procedures, we allow for a flexible specification, where a possible continuum of quantiles is simultaneously specified under fairly weak conditions on the serial dependence in the underlying data-generating process. Since the null limit distribution of tests is not pivotal, we propose a subsampling approximation of the asymptotic critical values. A Monte Carlo study shows that the asymptotic results provide good approximations for small sample sizes. Finally, an application suggests that our methodology is a powerful alternative to standard backtesting procedures in evaluating market risk.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 159 (2010)
Issue (Month): 1 (November)
Pages: 209-221

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Handle: RePEc:eee:econom:v:159:y:2010:i:1:p:209-221
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  1. M.J.B. Hall, 1996. "The amendment to the capital accord to incorporate market risk," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(197), pages 271-277.
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