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A new test for non-linear hypotheses under distributional and local parametric misspecification

  • Anil K. Bera , Osman Doğan ORCID logo EMAIL logo and Süleyman Taşpınar
Published/Copyright: November 29, 2022
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Studies in Nonlinear Dynamics & Econometrics
From the journal Studies in Nonlinear Dynamics & Econometrics Volume 27 Issue 5

Abstract

In this paper, we develop a new version of Rao’s score (RS) statistic for testing a non-linear hypothesis under both distributional and local parametric misspecification. Our suggested test statistic is constructed through a size correction approach so that it becomes robust to both types of misspecification. We establish the asymptotic properties of the robust test statistic and provide several examples to illustrate its implementation. We also investigate the finite sample properties of our test along with some other well-known tests through simulations. Our simulation results demonstrate that the new test statistic has good finite sample properties in terms of empirical size and power.

Keywords: distributional misspecification; LM test; parametric misspecification; QMLE; Rao’s score test; robust LM test
Corresponding author: Osman Doğan, Department of Economics, Istanbul Technical University, Istanbul, Türkiye, E-mail:

Acknowledgment

The authors would like to thank the editor and two anonymous referees for valuable comments and suggestions. This paper is dedicated to Dr. C. R. Rao to celebrate his 100th birthday which was on September 10, 2020.

  1. Author contributions: All the authors have accepted responsibility for the entire content of this submitted manuscript and approved submission.

  2. Research funding: None declared.

  3. Conflict of interest statement: The authors declare no conflicts of interest regarding this article.

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Supplementary Material

The online version of this article offers supplementary material (https://doi.org/10.1515/snde-2022-0043).

Received: 2022-04-29
Accepted: 2022-11-09
Published Online: 2022-11-29

© 2022 Walter de Gruyter GmbH, Berlin/Boston

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https://doi.org/10.1515/snde-2022-0043
Keywords for this article
distributional misspecification; LM test; parametric misspecification; QMLE; Rao’s score test; robust LM test

Articles in the same Issue

  1. Frontmatter
  2. Research Article
  3. Analysis of heterogeneous duopoly game with information asymmetry based on extrapolative mechanism
  4. Review
  5. Modelling volatility dependence with score copula models
  6. Research Articles
  7. A new test for non-linear hypotheses under distributional and local parametric misspecification
  8. Optimization study of momentum investment strategies under asymmetric power-law distribution of return rate
  9. Comparison of Score-Driven Equity-Gold Portfolios During the COVID-19 Pandemic Using Model Confidence Sets
  10. Integrated variance of irregularly spaced high-frequency data: A state space approach based on pre-averaging
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