Stationarity-based specification tests for diffusions when the process is nonstationary

Yacine Ait-Sahalia and Joon Y. Park

Journal of Econometrics, 2012, vol. 169, issue 2, 279-292

Abstract: We analyze in this paper the asymptotic behavior of the specification test of Aït-Sahalia (1996) for the stationary density of a diffusion process, but when the diffusion is not stationary. We consider integrated and explosive processes, as well as nearly integrated ones in the spirit of the local to unity analysis in classical unit root theory. We find that the behavior of the test predicted by the asymptotic distribution under an integrated process provides a better approximation to the small sample distribution of the test than that predicted by the asymptotic distribution under strict stationarity.

Date: 2012
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:169:y:2012:i:2:p:279-292

DOI: 10.1016/j.jeconom.2012.01.030

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