Towering over Babel: Worlds Apart but Acting Together

Joseph Greenberg, Sudheer Gupta and Xiao Luo
Additional contact information
Joseph Greenberg: Department of Economics, McGill University, Montreal, Canada
Sudheer Gupta: University of Michigan Business School, Ann Arbor, MI, USA

No 03-A009, 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.

JEL-codes: C72 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2003-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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