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Kaihua Deng
''Power Attrition of Asymmetric Tail Comovement Test''
( 2015, Vol. 35 No.4 )
In the Markov-switching framework, I study the effects of nuisance parameters such as the correlation and transition probability on the power of a recently proposed nonparametric test of asymmetric tail comovement (Li, 2014). As nuisance parameters govern how different states are separated apart and how they interact with each other, it is found that substantial power loss can be incurred when the underlying parameters take certain values. In addition, I show that the power of the test is sensitive to the choice of tail threshold and is adversely affected as one goes into deeper tails.
Keywords: Asymmetric tail comovement, Markov-switching, Nuisance parameters, Power attrition
JEL: C1 - Econometric and Statistical Methods: General
C4 - Econometric and Statistical Methods: Special Topics
Manuscript Received : Jul 22 2015 Manuscript Accepted : Dec 18 2015

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