Specification tests of parametric dynamic conditional quantiles

J. Carlos Escanciano (1) , Carlos Velasco (2)

1 Economics Department
2 Departamento de Economía, Universidad Carlos III de Madrid

This article proposes omnibus specification tests of parametric dynamic quantile models. Contrary to the existing procedures, we allow for a flexible specification, where a possibly continuum of quantiles are simultaneously specified under fairly weak conditions on the serial dependence in the underlying data generating process. Since the null limit distribution of tests is not pivotal, we propose a subsampling approximation of the asymptotic critical values. A Monte Carlo study shows that the asymptotic results provide good approximations for small sample sizes. Finally, an application suggests that our methodology is a powerful alternative to standard backtesting procedures in evaluating market risk.

Mots clés: C12; C22; Omnibus tests; Conditional quantiles; Nonlinear time series; Empirical processes; Quantile processes; Subsampling; Value-at-risk; Tail risk

Domaines: Econométrie de la finance [q-fin.ST]

J. Carlos Escanciano, Carlos Velasco. Specification tests of parametric dynamic conditional quantiles. Econometrics, 2010, 159 (1), pp.209. ⟨10.1016/j.jeconom.2010.06.003⟩. ⟨hal-00732534⟩