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

Y. Zu

Working Papers from Department of Economics, City University London

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.

Keywords: nonparametric test; stochastic volatility models (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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