Journal article

Likelihood ratio specification tests

A Chesher, RJ Smith

Econometrica | Published : 1997

Abstract

Misspecification tests for parametric models, f(y, θ), that examine data for failure of moment conditions implied by the maintained parametric distribution are interpreted as score tests of H0: λ = 0 in the context of a parametric family of distributions r(y; θ, λ). This family contains the maintained distribution as a special case (λ = 0) and has the property that only in that special case do the chosen moment conditions hold. A likelihood ratio test of H0: λ = 0 therefore constitutes an alternative test of the validity of the moment conditions. This test admits a Bartlett correction, unlike conventional moment tests for which adjustments based on second order asymptotic theory may behave b..

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