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Specification Tests in the Efficient Method of Moments Framework with Application to the Stochastic Volatility Models (1998)
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BibTeX
@MISC{Liu98specificationtests,
author = {Ming Liu and Harold H. Zhang},
title = {Specification Tests in the Efficient Method of Moments Framework with Application to the Stochastic Volatility Models},
year = {1998}
}
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Abstract
The efficient method of moments (EMM) estimation bases its inference on the versatile auxiliary model estimated by a seminonparametric (SNP) method. When the auxiliary model is appropriately chosen, the EMM estimates are near fully efficient and the EMM criterion can be used as a specification test on the structural model. In this paper, we propose a new specification test which allows us to choose an appropriate auxiliary model. Using the auxiliary model selected by our new test statistic, we test the stochastic volatility models fitted to daily S&P 500 stock price index. Our results indicate that while the standard stochastic volatility models are rejected overwhelmingly their extensions with thick tail errors cannot be rejected. 1 Introduction The idea of using the scores of an auxiliary model (called a score generator) to summarize systematically the characteristics of the data, and then confronting a structural model with this score generator is proposed in Bansal, Gallant, Hus...
Keyphrases
efficient method stochastic volatility model specification test moment framework auxiliary model structural model score generator new test statistic emm estimate stock price index appropriate auxiliary model new specification test thick tail error standard stochastic volatility model emm criterion versatile auxiliary model
