Publication Type
Journal Article
Version
publishedVersion
Publication Date
1-2013
Abstract
We develop a nonparametric test to check whether a process can be represented by a stochastic differential equation driven only by a Brownian motion. Our testing procedure utilizes the infinitesimal operator-based martingale characterization combined with a generalized spectral approach. Such a testing procedure is feasible and convenient because the infinitesimal operator of the diffusion process has a closed-form expression. The proposed test is applicable to both univariate and multivariate processes and has an limit distribution under the diffusion hypothesis. Simulation and empirical studies show that the proposed test has reasonable performance in small samples.
Keywords
diffusion, infinitesimal operator, martingale, nonparametric
Discipline
Econometrics | Finance
Research Areas
Finance
Areas of Excellence
Growth in Asia
Publication
Journal of Econometrics
Volume
173
Issue
1
First Page
83
Last Page
107
ISSN
0304-4076
Identifier
10.1016/j.jeconom.2012.10.001
Publisher
Elsevier
Citation
CHEN, Bin and SONG, Zhaogang.
Testing whether the underlying continuous-time process follows a diffusion: An infinitesimal operator-based approach. (2013). Journal of Econometrics. 173, (1), 83-107.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7929
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
External URL
https://api.elsevier.com/content/abstract/scopus_id/84872941944
Additional URL
https://doi.org/10.1016/j.jeconom.2012.10.001