Consistent nonparametric specification tests for stochastic volatility models based on the return distribution
Nonparametric tests of whether a stochastic-volatility model is correctly specified, based on the implied return distribution.
Volatility
Specification testing
code
Zu, Y. and Boswijk, H. P. (2017). Journal of Empirical Finance 41, 53–75.
Abstract
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.
Links
- Journal
- Code (MATLAB) — ready-to-use implementation of the test
BibTeX
@article{Zu_2017, title={Consistent nonparametric specification tests for stochastic volatility models based on the return distribution}, volume={41}, ISSN={0927-5398}, url={http://dx.doi.org/10.1016/j.jempfin.2016.12.005}, DOI={10.1016/j.jempfin.2016.12.005}, journal={Journal of Empirical Finance}, publisher={Elsevier BV}, author={Zu, Yang and Boswijk, H. Peter}, year={2017}, month=Mar, pages={53–75} }