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Hypothesis testing in econometrics

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  • Joseph P. Romano
  • Azeem M. Shaikh
  • Michael Wolf

Abstract

This paper reviews important concepts and methods that are useful for hypothesis testing. First, we discuss the Neyman-Pearson framework. Various approaches to optimality are presented, including finite-sample and large-sample optimality. Then, some of the most important methods are summarized, as well as resampling methodology which is useful to set critical values. Finally, we consider the problem of multiple testing, which has witnessed a burgeoning literature in recent years. Along the way, we incorporate some examples that are current in the econometrics literature. While we include many problems with wellknown successful solutions, we also include open problems that are not easily handled with current technology, stemming from issues like lack of optimality or poor asymptotic approximations.

Suggested Citation

  • Joseph P. Romano & Azeem M. Shaikh & Michael Wolf, 2009. "Hypothesis testing in econometrics," IEW - Working Papers 444, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:444
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    2. Freyberger, Joachim & Horowitz, Joel L., 2015. "Identification and shape restrictions in nonparametric instrumental variables estimation," Journal of Econometrics, Elsevier, vol. 189(1), pages 41-53.
    3. Dowling, Michael & Cummins, Mark & Lucey, Brian M., 2016. "Psychological barriers in oil futures markets," Energy Economics, Elsevier, vol. 53(C), pages 293-304.
    4. esposito, francesco paolo & cummins, mark, 2015. "Multiple hypothesis testing of market risk forecasting models," MPRA Paper 64986, University Library of Munich, Germany.
    5. Kearney, Fearghal & Cummins, Mark & Murphy, Finbarr, 2014. "Outperformance in exchange-traded fund pricing deviations: Generalized control of data snooping bias," Journal of Financial Markets, Elsevier, vol. 19(C), pages 86-109.
    6. Cummins, Mark & Dowling, Michael & Lucey, Brian M., 2015. "Behavioral influences in non-ferrous metals prices," Resources Policy, Elsevier, vol. 45(C), pages 9-22.
    7. Dette, Holger & Hoderlein, Stefan & Neumeyer, Natalie, 2016. "Testing multivariate economic restrictions using quantiles: The example of Slutsky negative semidefiniteness," Journal of Econometrics, Elsevier, vol. 191(1), pages 129-144.
    8. Joachim Freyberger & Joel L. Horowitz, 2012. "Identification and shape restrictions in nonparametric instrumental variables estimation," CeMMAP working papers CWP15/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    9. Zhao, Junguang & Xu, Xingzhong, 2016. "A generalized likelihood ratio test for normal mean when p is greater than n," Computational Statistics & Data Analysis, Elsevier, vol. 99(C), pages 91-104.
    10. Cummins, Mark, 2013. "EU ETS market interactions: The case for multiple hypothesis testing approaches," Applied Energy, Elsevier, vol. 111(C), pages 701-709.
    11. Roland G. Fryer, Jr & Meghan Howard Noveck, 2017. "High-Dosage Tutoring and Reading Achievement: Evidence from New York City," NBER Working Papers 23792, National Bureau of Economic Research, Inc.
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    15. repec:taf:oaefxx:v:5:y:2017:i:1:p:1339769 is not listed on IDEAS
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    17. Deeney, Peter & Cummins, Mark & Dowling, Michael & Bermingham, Adam, 2015. "Sentiment in oil markets," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 179-185.
    18. Meta Brown & John Grigsby & Wilbert van der Klaauw & Jaya Wen & Basit Zafar, 2016. "Financial Education and the Debt Behavior of the Young," Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2490-2522.
    19. Krauss, Christopher, 2015. "Statistical arbitrage pairs trading strategies: Review and outlook," FAU Discussion Papers in Economics 09/2015, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    20. repec:eee:intfin:v:49:y:2017:i:c:p:1-14 is not listed on IDEAS
    21. Joachim Freyberger & Joel L. Horowitz, 2013. "Identification and shape restrictions in nonparametric instrumental variables estimation," CeMMAP working papers CWP31/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    22. Ciampi, Francesco, 2015. "Corporate governance characteristics and default prediction modeling for small enterprises. An empirical analysis of Italian firms," Journal of Business Research, Elsevier, vol. 68(5), pages 1012-1025.
    23. Daniel Borup & Martin Thyrsgaard, 1705. "Statistical tests for equal predictive ability across multiple forecasting methods," CREATES Research Papers 2017-19, Department of Economics and Business Economics, Aarhus University.

    More about this item

    Keywords

    Asymptotics; multiple testing; optimality; resampling;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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