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Specification Tests (specification + test)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	81%

Selected Abstracts

Evaluating Specification Tests for Markov-Switching Time-Series Models

JOURNAL OF TIME SERIES ANALYSIS, Issue 4 2008
Daniel R. Smith
C12; C15; C22 Abstract., We evaluate the performance of several specification tests for Markov regime-switching time-series models. We consider the Lagrange multiplier (LM) and dynamic specification tests of Hamilton (1996) and Ljung,Box tests based on both the generalized residual and a standard-normal residual constructed using the Rosenblatt transformation. The size and power of the tests are studied using Monte Carlo experiments. We find that the LM tests have the best size and power properties. The Ljung,Box tests exhibit slight size distortions, though tests based on the Rosenblatt transformation perform better than the generalized residual-based tests. The tests exhibit impressive power to detect both autocorrelation and autoregressive conditional heteroscedasticity (ARCH). The tests are illustrated with a Markov-switching generalized ARCH (GARCH) model fitted to the US dollar,British pound exchange rate, with the finding that both autocorrelation and GARCH effects are needed to adequately fit the data. [source]

Evaluating animal welfare with choice experiments: an application to Swedish pig production

AGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 1 2008
Carolina Liljenstolpe
In this study, the demand for animal welfare attributes when buying pork fillet is investigated among Swedish respondents. The issue is of importance in order to ensure an economically viable pig industry while applying an increasing number of animal friendly practices. In order to obtain information about consumer demand, an indirect utility function and willingness to pay (WTP) for animal welfare attributes are estimated. The attributes are solely associated with animal friendly practices. An investigation of numerous housing and managerial practices of pig production has not yet been performed. The indirect utility function is estimated using a random parameter logit model. A realistic approach when modeling consumer choice is to allow for heterogeneity in preferences. The relevance of assuming randomness of some of the parameters is evaluated by using a specification test developed by McFadden and Train (2000). The WTP is also estimated at the individual level. The results indicate that WTP for animal welfare attributes may be negative or positive. The preferences are also heterogeneous among respondents, which may be explained by a segmentation of preferences. Finally, the WTP estimates for animal welfare practices are compared with cost estimates for such production systems. [Econlit subject codes: C010, C500, Q100] © 2008 Wiley Periodicals, Inc. [source]

Empirical Evaluation of Asset,Pricing Models: A Comparison of the SDF and Beta Methods

THE JOURNAL OF FINANCE, Issue 5 2002
Ravi Jagannathan
The stochastic discount factor (SDF) method provides a unified general framework for econometric analysis of asset,pricing models. There have been concerns that, compared to the classical beta method, the generality of the SDF method comes at the cost of efficiency in parameter estimation and power in specification tests. We establish the correct framework for comparing the two methods and show that the SDF method is as efficient as the beta method for estimating risk premiums. Also, the specification test based on the SDF method is as powerful as the one based on the beta method. [source]

Information and volatility links in the foreign exchange market

ACCOUNTING & FINANCE, Issue 2 2009
Sirimon Treepongkaruna
G12; G14 Abstract We apply the trading model of Fleming et al (1998). to a number of currency markets. The model posits that two markets can have common volatility structures as a result of receiving common information and from cross-hedging activity where a position in one currency is used to hedge risk in a position taken in another. Our results imply that the model is effective in identifying common information flows and volatility spillovers in the currency markets and that some of these effects are lost when simply examining raw correlations. A series of specification tests of the 21 bivariate systems that are examined provides support for the trading model in the foreign exchange context. [source]

Bayesian estimation of financial models

ACCOUNTING & FINANCE, Issue 2 2002
Philip Gray
This paper outlines a general methodology for estimating the parameters of financial models commonly employed in the literature. A numerical Bayesian technique is utilised to obtain the posterior density of model parameters and functions thereof. Unlike maximum likelihood estimation, where inference is only justified in large samples, the Bayesian densities are exact for any sample size. A series of simulation studies are conducted to compare the properties of point estimates, the distribution of option and bond prices, and the power of specification tests under maximum likelihood and Bayesian methods. Results suggest that maximum,likelihood,based asymptotic distributions have poor finite,sampleproperties. [source]

Parametric and semiparametric estimation of sample selection models: an empirical application to the female labour force in Portugal

JOURNAL OF APPLIED ECONOMETRICS, Issue 1 2001
Maria Fraga O. Martins
This paper applies both parametric and semiparametric methods to the estimation of wage and participation equations for married women in Portugal. The semiparametric estimators considered are the two-stage estimators proposed by Newey (1991) and Andrews and Schafgans (1998). The selection equation results are compared using the specification tests proposed by Horowitz (1993), Horowitz and Härdle (1994), and the wage equation results are compared using a Hausman test. Significant differences between the two approaches indicate the inappropriateness of the standard parametric methods to the estimation of the model and for the purpose of policy simulations. The greater departure seems to occur in the range of the low values of the index corresponding to a specific group of women. Copyright © 2001 John Wiley & Sons, Ltd. [source]

Evaluating Specification Tests for Markov-Switching Time-Series Models

Hedonic price index estimation under mean-independence of time dummies from quality characteristics

THE ECONOMETRICS JOURNAL, Issue 1 2003
Yasushi Kondo
Summary. We estimate hedonic price indices (HPI) for rental offices in Tokyo for the period 1985,1991. We take a partially linear regression (PLR) model, linear in x (year dummies) and nonparametric in z (office quality characteristics), as our main model; the usual linear model is used as well. Since x consists of year dummies, the linearity in x is not a restriction in the PLR model; the only restriction is that of no interaction between x and z. For the PLR model, the HPI are estimated -consistently with a two-stage procedure. For our data, x turns out to be (almost) mean-independent of z. This implies that least squares estimation (LSE) for models with a misspecified function for z is still consistent. The mean-independence also leads to an efficiency result that, under heteroskedasticity of unknown form, the two-stage PLR model estimator is at least as efficient as any LSE for models specifying (rightly or wrongly) the part for z. In addition to these, several interesting practical lessons are noted in doing the two-stage PLR model estimation. First, the cross validation (CV) used in the PLR model literature can fail if the mean-independence is ignored. Second, high order kernels can make the CV criterion function ill behaved. Third, product kernels work as well as spherically symmetric kernels. Fourth, nonparametric specification tests may work poorly due to a sample splitting problem with outliers in the data or due to choosing more than one bandwidth; in this regard, a test suggested by Stute (1997) and Stute et al. (1998) is recommended. [source]

Non-monotonic hazard functions and the autoregressive conditional duration model

THE ECONOMETRICS JOURNAL, Issue 1 2000
Joachim Grammig
This paper shows that the monotonicity of the conditional hazard in traditional ACD models is both econometrically important and empirically invalid. To counter this problem we introduce a more flexible parametric model which is easy to fit and performs well both in simulation studies and in practice. In an empirical application to NYSE price duration processes, we show that non-monotonic conditional hazard functions are indicated for all stocks. Recently proposed specification tests for financial duration models clearly reject the standard ACD models, whereas the results for the new model are quite favorable. [source]

Measuring business cycles with a dynamic Markov switching factor model: an assessment using Bayesian simulation methods

THE ECONOMETRICS JOURNAL, Issue 1 2000
Sylvia Kaufmann
A Markov switching common factor is used to drive a dynamic factor model for important macroeconomic variables in eight countries. Bayesian estimation of the model is based on Markov chain Monte Carlo simulation methods which yield inferences about the unobservable path of the common factor, the latent variable of the state process and all model parameters. Additionally, simulation based filtering provides us with samples from the prediction density that can be used for model diagnostics and specification tests. The mean posterior state probabilities are used to date business cycle turning points that follow quite closely previous datings reported in the literature. Moreover, we test the Markov switching against a no-switching specification by means of a Bayes factor. The evidence proves to be quite favorable for the Markov switching model. [source]