Consistent nonparametric specification tests for stochastic volatility models based on the return distribution

Zu, Yang; Boswijk, Peter

Abstract

© 2016 Elsevier Ltd This paper develops nonparametric specification tests for stochastic volatility models by comparing the nonparametically estimated return density and distribution functions with their parametric counterparts. Asymptotic null distributions of the tests are derived and the tests are shown to be consistent. Extensive Monte Carlo experiments are performed to study the finite sample properties of the tests. The proposed tests are applied in a number of empirical examples.

Citation

Zu, Y., & Boswijk, P. (2017). Consistent nonparametric specification tests for stochastic volatility models based on the return distribution. Journal of Empirical Finance, 41, 53-75. https://doi.org/10.1016/j.jempfin.2016.12.005

• Journal Article Type: Article
• Acceptance Date: Dec 28, 2016
• Online Publication Date: Jan 4, 2017
• Publication Date: Mar 1, 2017
• Deposit Date: Jan 4, 2017
• Publicly Available Date: Jan 4, 2017
• Journal: Journal of Empirical Finance
• Print ISSN: 0927-5398
• Electronic ISSN: 1879-1727
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 41
• Pages: 53-75
• DOI: https://doi.org/10.1016/j.jempfin.2016.12.005
• Keywords: Nonparametric test; Stochastic volatility models
• Public URL: https://nottingham-repository.worktribe.com/output/843349
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S092753981630161X
• Additional Information: This article is maintained by: Elsevier; Article Title: Consistent nonparametric specification tests for stochastic volatility models based on the return distribution; Journal Title: Journal of Empirical Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jempfin.2016.12.005; Content Type: article; Copyright: © 2017 Elsevier B.V. All rights reserved.