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Consistent nonparametric specification tests for stochastic volatility models based on the return distribution

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  • Zu, Yang
  • Boswijk, H. Peter

Abstract

This paper develops nonparametric specification tests for stochastic volatility models by comparing the nonparametically estimated return density and distribution functions with their parametric counterparts. Asymptotic null distributions of the tests are derived and the tests are shown to be consistent. Extensive Monte Carlo experiments are performed to study the finite sample properties of the tests. The proposed tests are applied in a number of empirical examples.

Suggested Citation

  • Zu, Yang & Boswijk, H. Peter, 2017. "Consistent nonparametric specification tests for stochastic volatility models based on the return distribution," Journal of Empirical Finance, Elsevier, vol. 41(C), pages 53-75.
    • Handle: RePEc:eee:empfin:v:41:y:2017:i:c:p:53-75
    DOI: 10.1016/j.jempfin.2016.12.005
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    More about this item

    Keywords

    Nonparametric test; Stochastic volatility models;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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