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Distributional tests in multivariate dynamic models with Normal and Student t innovations

Javier Mencia () and Enrique Sentana ()

No 929, Working Papers from Banco de España, Working Papers Homepage

Abstract: We derive Lagrange Multiplier and Likelihood Ratio specifi cation tests for the null hypotheses of multivariate normal and Student t innovations using the Generalised Hyperbolic distribution as our alternative hypothesis. We decompose the corresponding Lagrange Multiplier-type tests into skewness and kurtosis components, from which we obtain more powerful one-sided Kuhn-Tucker versions that are equivalent to the Likelihood Ratio test, whose asymptotic distribution we provide. We conduct detailed Monte Carlo exercises to study our proposed tests in finite samples. Finally, we present an empirical application to ten US sectoral stock returns, which indicates that their conditional distribution is mildly asymmetric and strongly leptokurtic.

Keywords: Bootstrap; Inequality Constraints; Kurtosis; Normality Tests; Skewness; Supremum Test; Underidentifed parameters (search for similar items in EconPapers)
JEL-codes: C12 C52 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2009-12
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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/09/Fic/dt0929e.pdf First version, December 2009 (application/pdf)

Related works:
Journal Article: Distributional Tests in Multivariate Dynamic Models with Normal and Student-t Innovations (2012) Downloads
Working Paper: Distributional Tests in Multivariate Dynamic Models with Normal and Student t Innovations (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0929

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