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A nonparametric copula based test for conditional independence with applications to Granger causality

Author

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  • BOUEZMARNI, Taoufik
  • ROMBOUTS, Jeroen

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • TAAMOUTI, Abderrahim

Abstract

This paper proposes a new nonparametric test for conditional independence, which is based on the comparison of Bernstein copula densities using the Hellinger distance. The test is easy to implement because it does not involve a weighting function in the test statistic, and it can be applied in general settings since there is no restriction on the dimension of the data. In fact, to apply the test, only a bandwidth is needed for the nonparametric copula. We prove that the test statistic is asymptotically pivotal under the null hypothesis, establish local power properties, and motivate the validity of the bootstrap technique that we use in finite sample settings. A simulation study illustrates the good size and power properties of the test. We illustrate the empirical relevance of our test by focusing on Granger causality using financial time series data to test for nonlinear leverage versus volatility feedback effects and to test for causality between stock returns and trading volume. In a third application, we investigate Granger causality between macroeconomic variables
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • BOUEZMARNI, Taoufik & ROMBOUTS, Jeroen & TAAMOUTI, Abderrahim, 2009. "A nonparametric copula based test for conditional independence with applications to Granger causality," LIDAM Discussion Papers CORE 2009041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2009041
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    Cited by:

    1. Ouimet, Frédéric, 2021. "Asymptotic properties of Bernstein estimators on the simplex," Journal of Multivariate Analysis, Elsevier, vol. 185(C).
    2. Cheng, Yu-Hsiang & Huang, Tzee-Ming, 2012. "A conditional independence test for dependent data based on maximal conditional correlation," Journal of Multivariate Analysis, Elsevier, vol. 107(C), pages 210-226.
    3. Gonzalo, Jesús & Taamouti, Abderrahim, 2011. "The reaction of stock market returns to anticipated unemployment," UC3M Working papers. Economics we1145, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Ruiz-Castillo, Javier, 2012. "From the “European Paradox” to a European Drama in citation impact," UC3M Working papers. Economics we1211, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Taoufik Bouezmarni & Abderrahim Taamouti, 2014. "Nonparametric tests for conditional independence using conditional distributions," Journal of Nonparametric Statistics, Taylor & Francis Journals, vol. 26(4), pages 697-719, December.
    6. Nana Kwame Akosah & Imhotep Paul Alagidede & Eric Schaling, 2021. "Dynamics of Money Market Interest Rates in Ghana: Time‐Frequency Analysis of Volatility Spillovers," South African Journal of Economics, Economic Society of South Africa, vol. 89(4), pages 555-589, December.

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    Keywords

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    JEL classification:

    • 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
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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