Conditional Moment Tests for Parametric Duration Models
This paper develops and compares specification tests for parametric duration models estimated with censored data. The tests are based on generalized residuals (the integrated hazard), which is exponentially distributed if the model is correctly specified. I present several conditional moment tests based on the generalized residuals: a raw moments test, a test based on Laguerre polynomials, and a Lagrange multiplier (LM) test. The LM test extends Lancasterâ??s (1985) test by allowing an arbitrarily precise approximation of the likelihood under the alternative. The raw moments test implemented via an auxiliary regression is examined using both asymptotic and bootstrap critical values. Monte Carlo evidence indicates that no one test dominates the others in all situations in terms of size, power, and ease of use. When the data are not censored, the Laguerre test appears to be the best choice. When there is censoring in the data, the Laguerre test is still at least as powerful as the other tests, but the raw moment test may be more convenient to perform. For the convenience of the practitioner the explicit forms of the tests for exponential and Weibull duration models are presented.
|Date of creation:||16 Jan 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (530) 752-0741
Fax: (530) 752-9382
Web page: http://www.econ.ucdavis.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gallant, A Ronald & Nychka, Douglas W, 1987. "Semi-nonparametric Maximum Likelihood Estimation," Econometrica, Econometric Society, vol. 55(2), pages 363-90, March.
- Lancaster, Tony, 1985. "Generalised residuals and heterogeneous duration models : With applications to the Weilbull model," Journal of Econometrics, Elsevier, vol. 28(1), pages 155-169, April.
- Jaggia, Sanjiv, 1991. "Tests of moment restrictions in parametric duration models," Economics Letters, Elsevier, vol. 37(1), pages 35-38, September.
- Sanjiv Jaggia, 1997. "Alternative Forms of the Score Test for Heterogeneity in a Censored Exponential Model," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 340-343, May.
- Kiefer, Nicholas M., 1985. "Specification diagnostics based on Laguerre alternatives for econometric models of duration," Journal of Econometrics, Elsevier, vol. 28(1), pages 135-154, April.
- Chesher, Andrew & Spady, Richard, 1991. "Asymptotic Expansions of the Information Matrix Test Statistic," Econometrica, Econometric Society, vol. 59(3), pages 787-815, May.
- Sunil Sharma, 1987. "Specification Diagnostics for Econometric Models of Duration," UCLA Economics Working Papers 440, UCLA Department of Economics.
- Joel L. Horowitz, 1999. "Semiparametric Estimation of a Proportional Hazard Model with Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 67(5), pages 1001-1028, September.
- Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
- Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
- Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
- Newey, Whitney K, 1985. "Maximum Likelihood Specification Testing and Conditional Moment Tests," Econometrica, Econometric Society, vol. 53(5), pages 1047-70, September.
- Jaggia, Sanjiv & Thosar, Satish, 1995. "Contested Tender Offers: An Estimate of the Hazard Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 113-19, January.
- Tauchen, George, 1985. "Diagnostic testing and evaluation of maximum likelihood models," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 415-443.
- Horowitz, Joel L & Neumann, George R, 1989. "Specification Testing in Censored Regression Models: Parametric and Semiparametric Methods," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S61-86, Supplemen.
When requesting a correction, please mention this item's handle: RePEc:cda:wpaper:00-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Scott Dyer)
If references are entirely missing, you can add them using this form.