A Consistent Test for the Martingale Difference Hypothesis

Manuel Dominguez () and Ignacio Lobato

No 101, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: This paper considers testing that an economic time series follows a martingale difference process. The martingale difference hypothesis has been typically tested using information contained in the second moments of a process, that is, using test statistics based on the sample autocovariances or in the periodograms. Tests based on these statistics are inconsistent since they just test necessary conditions of the null hypothesis. In this paper we consider tests that are consistent against all fixed alternatives and against Pitman's local alternatives. Since the asymptotic distributions of the tests statistics depend on the data generating process, the tests are implemented using a modification of the wild bootstrap procedure. The paper justifies theoretically the proposed tests and examines their finite sample behavior by means of Monte Carlo experiments. In addition we include an application to exchange rate data.

Keywords: nonlinear dependence; nonparametric; correlation; bootstrap (search for similar items in EconPapers)
JEL-codes: C12 C52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2001-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://ftp.itam.mx/pub/academico/inves/lobato/01-01.pdf First version, 2001 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:0101

Access Statistics for this paper

More papers in Working Papers from Centro de Investigacion Economica, ITAM Contact information at EDIRC.
Bibliographic data for series maintained by Diego Dominguez ().