Download This PaperFinite Sample Sizes of the GRS Test in the Presence of Dynamic Correlation and Conditional Heteroskedasticity
13 Pages Posted: 10 Nov 2017
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: 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
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