Consistent nonparametric specification tests for stochastic volatility models based on the return distribution

Zu, Y. (2015). Consistent nonparametric specification tests for stochastic volatility models based on the return distribution (Report No. 15/02). London, UK: Department of Economics, City University London.

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Abstract

This paper develops nonparametric specification tests for stochastic volatility models by comparing the nonparametically estimated return density and distribution functions with their parametric counterparts. Asymptotic null distributions of the tests are derived and the tests are shown to be consistent. Extensive Monte Carlo experiments are performed to study the finite sample properties of the tests. The tests are applied to an empirical dataset and we find the estimated stochastic volatility model is misspecified.

Item Type: Monograph (Discussion Paper)
Additional Information: Copyright authors 2015
Uncontrolled Keywords: nonparametric test, stochastic volatility models
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics > Department of Economics Discussion Paper Series
URI: http://openaccess.city.ac.uk/id/eprint/12206

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