A Generalized Stepwise Procedure with Improved Power for Multiple Inequalities Testing
Yu-Chin Hsu,
Chung-Ming Kuan and
Meng-Feng Yen
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Chung-Ming Kuan: Department of Finance, National Taiwan University
Meng-Feng Yen: Department of Accountancy and Graduate Institute of Banking and Finance, National Cheng Kung University
No 13-A001, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan
Abstract:
We propose a stepwise test, Step-SPA(k), for multiple inequalities testing. This test is analogous to the Step-SPA test of Hsu, Hsu, and Kuan (2010, Journal of Empirical Finance) but has asymptotic control of a generalized familywise error rate: the probability of at least k false rejections. This test is also an improvement of Step-RC(k) of Romano and Wolf (2007, Annals of Statistics) because it avoids the least favorable configuration used in Step-RC(k). We show that the proposed Step-SPA(k) is consistent, in that it can identify the violated null hypotheses with probability approaching one. It is also shown analytically and by simulations that Step-SPA(k) is more powerful than Step-RC(k) under any power notion defined in Romano and Wolf (2005, Econometrica). An empirical study on CTA fund performance is also provided to illustrate this test.
Keywords: data snooping; familiywise error rate; least favorable con guration; multiple inequalities testing; Reality Check; SPA test; stepwise test (search for similar items in EconPapers)
JEL-codes: C12 C52 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-01
New Economics Papers: this item is included in nep-ecm
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