Distributional Tests in Multivariate Dynamic Models with Normal and Student t Innovations

42 Pages Posted: 1 Apr 2009 Last revised: 18 Jun 2010

See all articles by Javier Mencia

Javier Mencia

Banco de España

Enrique Sentana

Centro de Estudios Monetarios y Financieros (CEMFI); Financial Markets Group; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 15, 2010

Abstract

We derive Lagrange Multiplier and Likelihood Ratio specification tests for the null hypotheses of multivariate normal and Student t innovations using the Generalised Hyperbolic distribution as our alternative hypothesis. We decompose the corresponding Lagrange Multiplier-type tests into skewness and kurtosis components. We also obtain more powerful one-sided Kuhn-Tucker versions that are equivalent to the Likelihood Ratio test, whose asymptotic distribution we provide. Finally, we conduct detailed Monte Carlo exercises to study the size and power properties of our proposed tests in finite samples.

Keywords: Bootstrap, Inequality Constraints, Kurtosis, Normality Tests, Skewness, Supremum Test, Underidentified parameters

JEL Classification: C12, C52, C32

Suggested Citation

Mencia, Javier and Sentana, Enrique, Distributional Tests in Multivariate Dynamic Models with Normal and Student t Innovations (June 15, 2010). Available at SSRN: https://ssrn.com/abstract=1370916 or http://dx.doi.org/10.2139/ssrn.1370916

Javier Mencia (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain
+34 91 338 5414 (Phone)
+34 91 338 6104 (Fax)

HOME PAGE: http://www.bde.es/investigador/staff/66.htm

Enrique Sentana

Centro de Estudios Monetarios y Financieros (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~sentana/

Financial Markets Group

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London School of Economics & Political Science (LSE)
London WC2A 2AE
United Kingdom
+44 20 7955 7002 (Phone)
+44 20 7852 3580 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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