TESTING FOR EMBEDDABILITY BY STATIONARY REVERSIBLE CONTINUOUS-TIME MARKOV PROCESSES

Jean-Pierre Florens, Eric Renault and Nizar Touzi

Econometric Theory, 1998, vol. 14, issue 6, 744-769

Abstract: Given an observation of a discrete-time process {Yi,i = 0...n} assumed to be Markov, stationary, and time reversible, we develop a (conservative) test procedure of embeddability by a continuous-time reversible Markov process. The test statistic is derived from a set of moment inequality restrictions implied by the spectral properties of such continuous-time processes. Most interesting is that the embeddability condition of interest is a direct extension of the well-known embeddability problem by a two-state Markov chain. Empirical experiments show that the embeddability hypothesis is rejected more frequently for exchange rate daily data than for stock indices data.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:cup:etheor:v:14:y:1998:i:06:p:744-769_14

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