 A New Test of the Martingale Difference HypothesisChung-Ming Kuan () and Wei-Ming Lee No 03-A001, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan Abstract: In this paper we propose a new class of tests for the martingale difference hypothesis based on the moment conditions derived by Bierens (1982). In contrast with the existing consistent tests, the proposed test has a standard limiting distribution and is easy to implement. Comparing with the commonly used autocorrelation- and spectrum-based tests, it has power against a much larger class of alternatives that may be serially correlated or uncorrelated. Moreover, this test does not rely on the assumption of conditional homoskedasticity and requires a weaker moment condition. Our simulations confirm that the proposed test is powerful against various linear and nonlinear alternatives and is quite robust to the failure of higher-order moments. Our empirical study on exchange rate returns also shows that the conclusion resulted from the proposed test is different from that of the conventional tests. Keywords: autocorrelation-based test; Bierens’ equivalence result; martingale difference sequence; multivariate exponential distribution; spectrum-based test (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sin:wpaper:03-a001 Access Statistics for this paper More papers in IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan Contact information at EDIRC. |
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