Finite Sample Sizes of the GRS Test in the Presence of Dynamic Correlation and Conditional Heteroskedasticity

13 Pages Posted: 10 Nov 2017

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa; University of Jyväskyla

Date Written: November 6, 2017

Abstract

This paper investigates the finite sample properties of the widely-used Gibbons, Ross, Shanken (1989) (GRS) test in the presence of both conditional correlation and conditional heteroskedasticity. It finds that the GRS test exhibits serious size distortions resulting in potentially misleading statistical inferences. The correct critical values, as reported in the study, are considerably larger than suggested by the GRS test.

Keywords: GRS Test, Wald Test, Dynamic Correlation, Conditional Heteroskedasticity

JEL Classification: C12, C15

Suggested Citation

Grobys, Klaus, Finite Sample Sizes of the GRS Test in the Presence of Dynamic Correlation and Conditional Heteroskedasticity (November 6, 2017). Available at SSRN: https://ssrn.com/abstract=3067210 or http://dx.doi.org/10.2139/ssrn.3067210

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

University of Jyväskyla ( email )

Jyväskyla
Finland

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