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Tests for Serial Dependence in Static, Non-Gaussian Factor Models

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We derive simple algebraic expressions for score tests of serial correlation in the levels and squares of common and idiosyncratic factors in static factor models with (semi) parametrically specified elliptical distributions even though one must generally compute the likelihood by simulation. We also robustify our Gaussian tests against nonnormality. The orthogonality conditions resemble the orthogonality conditions of models with observed factors but the weighting matrices reflect their unobservability. Our Monte Carlo exercises assess the finite sample reliability and power of our proposed tests, and compare them to other existing procedures. Finally, we apply our methods to monthly US stock returns.

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Paper provided by CEMFI in its series Working Papers with number wp2012_1211.

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Date of creation: Oct 2012
Handle: RePEc:cmf:wpaper:wp2012_1211
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  7. Hodgson, Douglas J & Vorkink, Keith P, 2003. "Efficient Estimation of Conditional Asset-Pricing Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 269-283, April.
  8. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-386.
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  31. repec:adr:anecst:y:2000:i:58:p:01 is not listed on IDEAS
  32. Amengual, Dante & Fiorentini, Gabriele & Sentana, Enrique, 2013. "Sequential estimation of shape parameters in multivariate dynamic models," Journal of Econometrics, Elsevier, vol. 177(2), pages 233-249.
  33. Sentana, Enrique, 2004. "Factor representing portfolios in large asset markets," Journal of Econometrics, Elsevier, vol. 119(2), pages 257-289, April.
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  35. Giorgio Calzolari & Gabriele Fiorentini & Enrique Sentana, 2004. "Constrained Indirect Estimation," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 945-973.
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