Non-Parametric Weighted Tests for Independence Based on Empirical Copula Process.

Abstract

We propose a class of flexible non-parametric tests for the presence of dependence between components of a random vector based on weighted Cramér-von Mises functionals of the empirical copula process. The weights act as a tuning parameter and are shown to significantly influence the power of the test, making it more sensitive to different types of dependence. Asymptotic properties of the test are stated in the general case, for an arbitrary bounded and integrable weighting function, and computational formulas for a number of weighted statistics are provided. Several issues relating to the choice of the weights are discussed, and a simulation study is conducted to investigate the power of the test under a variety of dependence alternatives. The greatest gain in power is found to occur when weights are set proportional to true deviations from independence copula.

Keywords: tests for independence, nonparametric methods, copula, Monte-Carlo methods, test power, weighted Cramér– von Mises statistics, empirical copula process

JEL Classification: C12, C14, C49