A test for the rank of the volatility process: the random perturbation approach

Jean Jacod () and Mark Podolskij ()
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Jean Jacod: University Paris VI, Postal: Institut de Mathématiques de Jussieu, 4 Place Jussieu, 75 005 Paris, France
Mark Podolskij: Heidelberg University and CREATES, Postal: Department of Mathematics, 69120 Heidelberg, Germany

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper we present a test for the maximal rank of the matrix-valued volatility process in the continuous Itô semimartingale framework. Our idea is based upon a random perturbation of the original high frequency observations of an Itô semimartingale, which opens the way for rank testing. We develop the complete limit theory for the test statistic and apply it to various null and alternative hypotheses. Finally, we demonstrate a homoscedasticity test for the rank process.

Keywords: central limit theorem; high frequency data; homoscedasticity testing; Itô semimartingales; rank estimation; stable convergence. (search for similar items in EconPapers)
JEL-codes: C10 C13 C14 (search for similar items in EconPapers)
Pages: 30
Date: 2012-12-14
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2012-57

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