Seminario Applied

Enrique Sentana

CEMFI

13-Sep-2017

Seminar 2 – 14:30

Resumen

We derive computationally simple and intuitive expressions for score tests of Gaussian copulas against Generalized Hyperbolic alternatives, including symmetric and asymmetric Student t, and many other examples. We decompose our tests into third and fourth moment components, and obtain one-sided Likelihood Ratio analogues, whose standard asymptotic distribution we provide. Our Monte Carlo exercises confirm the reliable size of parametric bootstrap versions of our tests, and their substantial power gains over alternative procedures. In an empirical application to CRSP stocks, we find that short-term reversals and momentum effects are better captured by non-Gaussian copulas, whose parameters we estimate by indirect inference

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