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A misspecification test for multiplicative error models of non-negative time series processes

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  • Gao, Jiti
  • Kim, Nam Hyun
  • Saart, Patrick W.

Abstract

In recent years, analysis of financial time series focuses largely on data related to market trading activity. Apart from modeling of the conditional variance of returns within the generalized autoregressive conditional heteroskedasticity (GARCH) family of models, presently attention is also devoted to that of other market variables, for instance volumes, number of trades or financial durations. To this end, a large group of researchers focus their studies on a class of model that is referred to in the literature as the multiplicative error model (MEM), which is considered particularly for modeling non-negative time series processes. The goal of the current paper is to establish an alternative misspecification test for the MEM of non-negative time series processes. In the literature, although several procedures are available to perform hypothesis testing for the MEM, the newly proposed testing procedure is particularly useful in the context of the MEM of waiting times between financial events since its outcomes have a number of important implications on the fundamental concept of point processes. Finally, the current paper makes a number of statistical contributions, especially in making a head way into nonparametric hypothesis testing of unobservable variables.

Suggested Citation

  • Gao, Jiti & Kim, Nam Hyun & Saart, Patrick W., 2015. "A misspecification test for multiplicative error models of non-negative time series processes," Journal of Econometrics, Elsevier, vol. 189(2), pages 346-359.
  • Handle: RePEc:eee:econom:v:189:y:2015:i:2:p:346-359
    DOI: 10.1016/j.jeconom.2015.03.028
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    References listed on IDEAS

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    Cited by:

    1. Ling, Shiqing & McAleer, Michael & Tong, Howell, 2015. "Frontiers in Time Series and Financial Econometrics: An overview," Journal of Econometrics, Elsevier, vol. 189(2), pages 245-250.
    2. Perera, Indeewara & Koul, Hira L., 2017. "Fitting a two phase threshold multiplicative error model," Journal of Econometrics, Elsevier, vol. 197(2), pages 348-367.
    3. Ling, S. & McAleer, M.J. & Tong, H., 2015. "Frontiers in Time Series and Financial Econometrics," Econometric Institute Research Papers EI 2015-07, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    4. repec:taf:gnstxx:v:29:y:2017:i:3:p:531-552 is not listed on IDEAS

    More about this item

    Keywords

    Positive time-series; Dependent point process; Hypothesis testing; Multiplicative error model;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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