A Test for the Rank of the Volatility Process: The Random Perturbation Approach

Jean Jacod and Mark Podolskij

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: In this paper we present a test for the maximal rank of the matrix-valued volatility process in the continuous Ito semimartingale framework. Our idea is based upon a random perturbation of the original high frequency observations of an Ito semimartingale, which opens the way for rank testing. We develop the complete limit theory for the test statistic and apply it to various null and alternative hypotheses. Finally, we demonstrate a homoscedasticity test for the rank process.

Keywords: central limit theorem; high frequency data; homoscedasticity testing; Ito semimartingales; rank estimation; stable convergence (search for similar items in EconPapers)
Date: 2012-12
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hst:ghsdps:gd12-268

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