Nonparametric Tests for Serial Independence Based on Quadratic Forms

Cees Diks () and Valentyn Panchenko

No 05-13, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: Tests for serial independence and goodness-of-fit based on divergence notions between probability distributions, such as the Kullback-Leibler divergence or Hellinger distance, have recently received much interest in time series analysis. The aim of this paper is to introduce tests for serial independence using kernel-based quadratic forms. This separates the problem of consistently estimating the divergence measure from that of consistently estimating the underlying joint densities, the existence of which is no longer required. Exact level tests are obtained by implementing a Monte Carlo procedure using permutations of the original observations. The bandwidth selection problem is addressed by introducing a multiple bandwidth procedure based on a range of different bandwidth values. After numerically establishing that the tests perform well compared to existing nonparametric tests, applications to estimated time series residuals are considered. The approach is illustrated with an application to financial returns data.

Date: 2005
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Working Paper: Nonparametric Tests for Serial Independence Based on Quadratic Forms (2005)
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