On the choice of instruments in mixed frequency specification tests

Yun Liu and Yeonwoo Rho

Communications in Statistics - Theory and Methods, 2019, vol. 48, issue 24, 6098-6118

Abstract: Time averaging has been the traditional approach to handle mixed sampling frequencies. However, it ignores information possibly embedded in high frequency. Mixed data sampling (MIDAS) regression models provide a concise way to utilize the additional information in high-frequency variables. In this paper, we propose a specification test to choose between time averaging and MIDAS models, based on a Durbin-Wu-Hausman test. In particular, a set of instrumental variables is proposed and theoretically validated when the frequency ratio is large. As a result, our method tends to be more powerful than existing methods, as reconfirmed through the simulations.

Date: 2019
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DOI: 10.1080/03610926.2018.1528367

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