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Bootstrap Tests for High-Dimensional White-Noise

Author

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  • Lengyang Wang
  • Efang Kong
  • Yingcun Xia

Abstract

The testing of white-noise (WN) is an essential step in time series analysis. In a high dimensional set-up, most existing methods either are computationally infeasible, or suffer from highly distorted Type-I errors, or both. We propose an easy-to-implement bootstrap method for high-dimensional WN test and prove its consistency for a variety of test statistics. Its power properties as well as extensions to WN tests based on fitted residuals are also considered. Simulation results show that compared to the existing methods, the new approach possesses much better power, while maintaining a proper control over the Type-I error. They also provide proofs that even in cases where our method is expected to suffer from lack of theoretical justification, it continues to outperform its competitors. The proposed method is applied to the analysis of the daily stock returns of the top 50 companies by market capitalization listed on the NYSE, and we find strong evidence that the common market factor is the main cause of cross-correlation between stocks.

Suggested Citation

  • Lengyang Wang & Efang Kong & Yingcun Xia, 2022. "Bootstrap Tests for High-Dimensional White-Noise," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(1), pages 241-254, December.
    • Handle: RePEc:taf:jnlbes:v:41:y:2022:i:1:p:241-254
    DOI: 10.1080/07350015.2021.2008407
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