In this paper we propose a novel goodness-of-fit testing scheme for regime-switching models. We consider models with an observable, as well as, a latent state process. The test is based on the Kolmogorov-Smirnov supremum-distance statistic and the concept of the weighted empirical distribution...

We propose a new adequacy test and a graphical evaluation tool for nonlinear dynamic models. The proposed techniques can be applied in any setup where parametric conditional distribution of the data is specified, in particular to models involving conditional volatility, conditional higher...

AMS classifications: 62G08, 62G10, 62G20, 62G30; 60F17.

As the European Union Emissions Trading Scheme (EU ETS) prepares for the post-2012 Phase III period that runs to 2020, a timely assessment of European Union Allowance (EUA) and Certified Emissions Reduction (CER) price interactions over the Phase II period is presented. Vector autoregression and...

We are interested in statistical tests that are able to uncover that one method is better than another one. The Wilcoxon-Mann-Whitney rank-sum and the Wilcoxon sign-rank test are the most popular tests for showing that two methods are different. Yet all of the 32 papers in Economics we surveyed...

In studying the scale invariance of an empirical time series a twofold problem arises: it is necessary to test the series for self-similarity and, once passed such a test, the goal becomes to estimate the parameter H0 of self-similarity. The estimation is therefore correct only if the sequence...

We propose new tests of the martingale hypothesis based on generalized versions of the Kolmogorov-Smirnov and Cramer-von Mises tests. The tests are distribution free and allow for a weak drift in the null model. The methods do not require either smoothing parameters or bootstrap resampling for...

We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface....

In this paper, we study several tests for the equality of two unknown distributions. Two are based on empirical distribution functions, three others on nonparametric probability density estimates, and the last ones on differences between sample moments. We suggest controlling the size of such...

In the last decade Markov-regime switching (MRS) models have been extensively used for modeling the unique behavior of spot prices in wholesale electricity markets. This popularity stems from the models’ relative parsimony and the ability to capture the stylized facts, in particular the mean...