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Computationally Attractive Stability Tests for the Efficient Method of Moments

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  • Pieter J. van der Sluis

    (University of Amsterdam)

Abstract

Estimation using simulation techniques may be very time consuming. Specification tests for structuralstability often require more than one of such computationally demanding estimators. Typically one for thesample, one for the post-sample and one for the combination of sample and post-sample is required. Thispaper describes structural stability tests for use with the Efficient Method of Moments technique.Computationally attractive post-sample estimators and test-statistics for structural stability are proposed.These computationally attractive test-statistics are modifications of the Lagrange Multiplier, LikelihoodRatio and Wald tests for structural stability and of the Hansen-type test statistics for structural stability.The modification ensures the same asymptotic optimality properties against certain local alternatives asthose based on efficient computationally intensive estimators for the post-sample. However no timeconsuming estimators are needed for the post-sample and for the combination of sample and post-sample. Evaluation of these tests has been performed in the context of a stochastic volatility model for theS&P500.

Suggested Citation

  • Pieter J. van der Sluis, 1997. "Computationally Attractive Stability Tests for the Efficient Method of Moments," Tinbergen Institute Discussion Papers 97-087/4, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:19970087
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    Cited by:

    1. Pieter J. van der Sluis, 1997. "Post-Sample Prediction Tests for the Efficient Method of Moments," Tinbergen Institute Discussion Papers 97-054/4, Tinbergen Institute.
    2. Peter Smith & Michael Wickens, 2002. "Asset Pricing with Observable Stochastic Discount Factors," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 397-446, July.
    3. Ghysels, Eric & Guay, Alain, 2003. "Structural change tests for simulated method of moments," Journal of Econometrics, Elsevier, vol. 115(1), pages 91-123, July.
    4. Pieter J. van der Sluis, 1998. "Structural Stability Tests with Unknown Breakpoint for the Efficient Method of Moments with Application to Stochastic Volatility Models," Tinbergen Institute Discussion Papers 98-055/4, Tinbergen Institute.
    5. Carmen Broto & Esther Ruiz, 2004. "Estimation methods for stochastic volatility models: a survey," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 613-649, December.
    6. George J. Jiang & Pieter J. van der Sluis, 1998. "Pricing Stock Options under Stochastic Volatility and Stochastic Interest Rates with Efficient Method of Moments Estimation," Tinbergen Institute Discussion Papers 98-067/4, Tinbergen Institute.

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