Dynamic Specification Tests for Static Factor Models
Gabriele Fiorentini () and
Enrique Sentana ()
Working Paper series from Rimini Centre for Economic Analysis
We derive computationally simple score tests of serial correlation in the levels and squares of common and idiosyncratic factors in static factor models. The implicit orthogonality conditions resemble the orthogonality conditions of models with observed factors but the weighting matrices reflect their unobservability. We derive more powerful tests for elliptically symmetric distributions, which can be either parametrically or semiparametrically specified, and robustify the Gaussian tests against general non-normality. Our Monte Carlo exercises assess the finite sample reliability and power of our proposed tests, and compare them to other existing procedures. Finally, we apply our methods to monthly US stock returns.
Keywords: ARCH; Financial returns; Kalman filter; LM tests; Predictability (search for similar items in EconPapers)
JEL-codes: C32 C13 C12 C14 C16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: Dynamic Specification Tests for Static Factor Models (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:04_10
Access Statistics for this paper
More papers in Working Paper series from Rimini Centre for Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Marco Savioli ().