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Time-invariant restrictions of volatility functionals: Efficient estimation and specification tests
- Source :
- Journal of Econometrics. 215:486-516
- Publication Year :
- 2020
- Publisher :
- Elsevier BV, 2020.
-
Abstract
- This paper studies the estimation and inference problems of time-invariant restrictions on certain known functions of the stochastic volatility process. We first develop a more efficient GMM estimator and derive the efficiency bound under such restrictions. Then we construct an integrated Hausman-type test by summing up the squared differences between this more efficient estimator and the unrestricted estimator computed at different time points. Although less efficient under the null, the latter estimator is consistent under both the null and the alternative. The efficient GMM estimator can also be used to update an existing Bierens-type test and simplify the calculation of the asymptotic variance. Since the quadratic function puts more weight on large values, the Hausman-type test can have superior power than the Bierens-type test, which is based on a linear function of the differences. The simulation study shows that except for very small local window sizes, the Hausman-type test has good size and superior power. We finally apply these tests to studying the constant beta hypothesis using empirical data and find substantial evidence against this hypothesis.
- Subjects :
- Economics and Econometrics
Stochastic volatility
Applied Mathematics
05 social sciences
Estimator
Inference
Quadratic function
01 natural sciences
LTI system theory
010104 statistics & probability
Delta method
Efficient estimator
0502 economics and business
Applied mathematics
0101 mathematics
Volatility (finance)
050205 econometrics
Mathematics
Subjects
Details
- ISSN :
- 03044076
- Volume :
- 215
- Database :
- OpenAIRE
- Journal :
- Journal of Econometrics
- Accession number :
- edsair.doi...........351e4fe4758579466feb21becd0ffbec