Omnibus test for covariate effects in conditional copula models

Abstract

Conditional copulas describe the conditional dependence and the influence that covariates have on the dependence structure between two (or more) variables. Of interest is to test the null hypothesis that the covariates have a specific effect. This paper proposes an omnibus test for testing the null hypothesis of a specified effect of the covariates. The test statistic is designed for having power against many alternatives, and can be used to test for a variety of covariate effects (no effects, linear effects, partial effects, etc.). A special case is the testing problem that the covariates do not affect the dependence structure. In this semiparametric framework the marginal distribution functions are estimated using nonparametric kernel techniques and the parametric dependence model is estimated using maximum likelihood estimation. We establish the asymptotic distribution of the test statistic under the null hypothesis, and evaluate the finite-sample performance of the test via a simulation study, which also includes comparisons with alternative tests. A real data analysis illustrates the practical use of the test. (C) 2021 Elsevier Inc. All rights reserved.