Finite-Sample Simulation-Based Inference in VAR Models with Applications to Order Selection and Causality Testing

Statistical tests in vector autoregressive (VAR) models are typically based on large-sample approximations, involving the use of asymptotic distributions or bootstrap techniques. After documenting that such methods can be very misleading even with fairly large samples, especially when the number of lags or the number of equations is not small, we propose a general simulation-based technique that allows one to control completely the level of tests in parametric VAR models. In particular, we show that maximized Monte Carlo tests [Dufour (2002)] can provide provably exact tests for such models, whether they are stationary or integrated. Applications to order selection and causality testing are considered as special cases. The technique developed is applied to quarterly and monthly VAR models of the U.S. economy, comprising income, money, interest rates and prices, over the period 1965-1996.

A NOVEL AND SIMPLE RULE OF THUMB FOR MULTIPLICITY CONTROL IN EQUIVALENCE TESTING USING TWO ONE-SIDED TESTS

Equivalence testing is growing in use in scientific research outside of its traditional role in the drug approval process. Largely due to its ease of use and recommendation from the United States Food and Drug Administration guidance, the most common statistical method for testing (bio)equivalence is the two one-sided tests procedure (TOST). Like classical point-null hypothesis testing, TOST is subject to multiplicity concerns as more comparisons are made. In this manuscript, a condition that bounds the family-wise error rate (FWER) using TOST is given. This condition then leads to a simple solution for controlling the FWER. Specifically, we demonstrate that if all pairwise comparisons of k independent groups are being evaluated for equivalence, then simply scaling the nominal Type I error rate down by (k - 1) is sufficient to maintain the family-wise error rate at the desired value or less. The resulting rule is much less conservative than the equally simple Bonferroni correction. An example of equivalence testing in a non drug-development setting is given.

Comparative phylogeographic summary statistics for testing simultaneous vicariance

Testing for simultaneous vicariance across comparative phylogeographic data sets is a notoriously difficult problem hindered by mutational variance, the coalescent variance, and variability across pairs of sister taxa in parameters that affect genetic divergence. We simulate vicariance to characterize the behaviour of several commonly used summary statistics across a range of divergence times, and to characterize this behaviour in comparative phylogeographic datasets having multiple taxon-pairs. We found Tajima's D to be relatively uncorrelated with other summary statistics across divergence times, and using simple hypothesis testing of simultaneous vicariance given variable population sizes, we counter-intuitively found that the variance across taxon pairs in Nei and Li's net nucleotide divergence (pi(net)), a common measure of population divergence, is often inferior to using the variance in Tajima's D across taxon pairs as a test statistic to distinguish ancient simultaneous vicariance from variable vicariance histories. The opposite and more intuitive pattern is found for testing more recent simultaneous vicariance, and overall we found that depending on the timing of vicariance, one of these two test statistics can achieve high statistical power for rejecting simultaneous vicariance, given a reasonable number of intron loci (> 5 loci, 400 bp) and a range of conditions. These results suggest that components of these two composite summary statistics should be used in future simulation-based methods which can simultaneously use a pool of summary statistics to test comparative the phylogeographic hypotheses we consider here.

Geographical variation in the penetrance of CDKN2A mutations for melanoma

Background: Germline mutations in the CDKN2A gene, which encodes two proteins (p16INK4A and p14ARF), are the most common cause of inherited susceptibility to melanoma. We examined the penetrance of such mutations using data from eight groups from Europe, Australia and the United States that are part of The Melanoma Genetics Consortium Methods: We analyzed 80 families with documented CDKN2A mutations and multiple cases of cutaneous melanoma. We modeled penetrance for melanoma using a logistic regression model incorporating survival analysis. Hypothesis testing was based on likelihood ratio tests. Covariates included gender, alterations in p14APF protein, and population melanoma incidence rates. All statistical tests were two-sided. Results: The 80 analyzed families contained 402 melanoma patients, 320 of whom were tested for mutations and 291 were mutation carriers. We also tested 713 unaffected family members for mutations and 194 were carriers. Overall, CDKN2A mutation penetrance was estimated to be 0.30 (95% confidence interval (CI) = 0.12 to 0.62) by age 50 years and 0.67 (95% CI = 0.31 to 0.96) by age 80 years. Penetrance was not statistically significantly modified by gender or by whether the CDKN2A mutation altered p14ARF protein. However, there was a statistically significant effect of residing in a location with a high population incidence rate of melanoma (P = .003). By age 50 years CDKN2A mutation penetrance reached 0.13 in Europe, 0.50 in the United States, and 0.32 in Australia; by age 80 years it was 0.58 in Europe, 0.76 in the United States, and 0.91 in Australia. Conclusions: This study, which gives the most informed estimates of CDKN2A mutation penetrance available, indicates that the penetrance varies with melanoma population incidence rates. Thus, the same factors that affect population incidence of melanoma may also mediate CDKN2A penetrance.

The evolutionary host switches of Polychromophilus: a multi-gene phylogeny of the bat malaria genus suggests a second invasion of mammals by a haemosporidian parasite.

BACKGROUND: The majority of Haemosporida species infect birds or reptiles, but many important genera, including Plasmodium, infect mammals. Dipteran vectors shared by avian, reptilian and mammalian Haemosporida, suggest multiple invasions of Mammalia during haemosporidian evolution; yet, phylogenetic analyses have detected only a single invasion event. Until now, several important mammal-infecting genera have been absent in these analyses. This study focuses on the evolutionary origin of Polychromophilus, a unique malaria genus that only infects bats (Microchiroptera) and is transmitted by bat flies (Nycteribiidae). METHODS: Two species of Polychromophilus were obtained from wild bats caught in Switzerland. These were molecularly characterized using four genes (asl, clpc, coI, cytb) from the three different genomes (nucleus, apicoplast, mitochondrion). These data were then combined with data of 60 taxa of Haemosporida available in GenBank. Bayesian inference, maximum likelihood and a range of rooting methods were used to test specific hypotheses concerning the phylogenetic relationships between Polychromophilus and the other haemosporidian genera. RESULTS: The Polychromophilus melanipherus and Polychromophilus murinus samples show genetically distinct patterns and group according to species. The Bayesian tree topology suggests that the monophyletic clade of Polychromophilus falls within the avian/saurian clade of Plasmodium and directed hypothesis testing confirms the Plasmodium origin. CONCLUSION: Polychromophilus' ancestor was most likely a bird- or reptile-infecting Plasmodium before it switched to bats. The invasion of mammals as hosts has, therefore, not been a unique event in the evolutionary history of Haemosporida, despite the suspected costs of adapting to a new host. This was, moreover, accompanied by a switch in dipteran host.

Emotion expression in body action and posture

Emotion communication research strongly focuses on the face and voice as expressive modalities, leaving the rest of the body relatively understudied. Contrary to the early assumption that body movement only indicates emotional intensity, recent studies show that body movement and posture also convey emotion specific information. However, a deeper understanding of the underlying mechanisms is hampered by a lack of production studies informed by a theoretical framework. In this research we adopted the Body Action and Posture (BAP) coding system to examine the types and patterns of body movement that are employed by 10 professional actors to portray a set of 12 emotions. We investigated to what extent these expression patterns support explicit or implicit predictions from basic emotion theory, bi-dimensional theory, and componential appraisal theory. The overall results showed partial support for the different theoretical approaches. They revealed that several patterns of body movement systematically occur in portrayals of specific emotions, allowing emotion differentiation. While a few emotions were prototypically encoded by one particular pattern, most emotions were variably expressed by multiple patterns, many of which can be explained as reflecting functional components of emotion such as modes of appraisal and action readiness. It is concluded that further work in this largely underdeveloped area should be guided by an appropriate theoretical framework to allow a more systematic design of experiments and clear hypothesis testing.

A domain-general perspective on medial frontal brain activity during performance monitoring

Activity of the medial frontal cortex (MFC) has been implicated in attention regulation and performance monitoring. The MFC is thought to generate several event-related potential (ERPs) components, known as medial frontal negativities (MFNs), that are elicited when a behavioural response becomes difficult to control (e.g., following an error or shifting from a frequently executed response). The functional significance of MFNs has traditionally been interpreted in the context of the paradigm used to elicit a specific response, such as errors. In a series of studies, we consider the functional similarity of multiple MFC brain responses by designing novel performance monitoring tasks and exploiting advanced methods for electroencephalography (EEG) signal processing and robust estimation statistics for hypothesis testing. In study 1, we designed a response cueing task and used Independent Component Analysis (ICA) to show that the latent factors describing a MFN to stimuli that cued the potential need to inhibit a response on upcoming trials also accounted for medial frontal brain responses that occurred when individuals made a mistake or inhibited an incorrect response. It was also found that increases in theta occurred to each of these task events, and that the effects were evident at the group level and in single cases. In study 2, we replicated our method of classifying MFC activity to cues in our response task and showed again, using additional tasks, that error commission, response inhibition, and, to a lesser extent, the processing of performance feedback all elicited similar changes across MFNs and theta power. In the final study, we converted our response cueing paradigm into a saccade cueing task in order to examine the oscillatory dynamics of response preparation. We found that, compared to easy pro-saccades, successfully preparing a difficult anti-saccadic response was characterized by an increase in MFC theta and the suppression of posterior alpha power prior to executing the eye movement. These findings align with a large body of literature on performance monitoring and ERPs, and indicate that MFNs, along with their signature in theta power, reflects the general process of controlling attention and adapting behaviour without the need to induce error commission, the inhibition of responses, or the presentation of negative feedback.

Finite-Sample Inference Methods for Simultaneous Equations and Models with Unobserved and Generated Regressors

We propose finite sample tests and confidence sets for models with unobserved and generated regressors as well as various models estimated by instrumental variables methods. The validity of the procedures is unaffected by the presence of identification problems or \"weak instruments\", so no detection of such problems is required. We study two distinct approaches for various models considered by Pagan (1984). The first one is an instrument substitution method which generalizes an approach proposed by Anderson and Rubin (1949) and Fuller (1987) for different (although related) problems, while the second one is based on splitting the sample. The instrument substitution method uses the instruments directly, instead of generated regressors, in order to test hypotheses about the \"structural parameters\" of interest and build confidence sets. The second approach relies on \"generated regressors\", which allows a gain in degrees of freedom, and a sample split technique. For inference about general possibly nonlinear transformations of model parameters, projection techniques are proposed. A distributional theory is obtained under the assumptions of Gaussian errors and strictly exogenous regressors. We show that the various tests and confidence sets proposed are (locally) \"asymptotically valid\" under much weaker assumptions. The properties of the tests proposed are examined in simulation experiments. In general, they outperform the usual asymptotic inference methods in terms of both reliability and power. Finally, the techniques suggested are applied to a model of Tobin’s q and to a model of academic performance.

Finite-Sample Diagnostics for Multivariate Regressions with Applications to Linear Asset Pricing Models

In this paper, we propose several finite-sample specification tests for multivariate linear regressions (MLR) with applications to asset pricing models. We focus on departures from the assumption of i.i.d. errors assumption, at univariate and multivariate levels, with Gaussian and non-Gaussian (including Student t) errors. The univariate tests studied extend existing exact procedures by allowing for unspecified parameters in the error distributions (e.g., the degrees of freedom in the case of the Student t distribution). The multivariate tests are based on properly standardized multivariate residuals to ensure invariance to MLR coefficients and error covariances. We consider tests for serial correlation, tests for multivariate GARCH and sign-type tests against general dependencies and asymmetries. The procedures proposed provide exact versions of those applied in Shanken (1990) which consist in combining univariate specification tests. Specifically, we combine tests across equations using the MC test procedure to avoid Bonferroni-type bounds. Since non-Gaussian based tests are not pivotal, we apply the “maximized MC” (MMC) test method [Dufour (2002)], where the MC p-value for the tested hypothesis (which depends on nuisance parameters) is maximized (with respect to these nuisance parameters) to control the test’s significance level. The tests proposed are applied to an asset pricing model with observable risk-free rates, using monthly returns on New York Stock Exchange (NYSE) portfolios over five-year subperiods from 1926-1995. Our empirical results reveal the following. Whereas univariate exact tests indicate significant serial correlation, asymmetries and GARCH in some equations, such effects are much less prevalent once error cross-equation covariances are accounted for. In addition, significant departures from the i.i.d. hypothesis are less evident once we allow for non-Gaussian errors.

Exact Skewness-Kurtosis Tests for Multivariate Normality and Goodness-of-fit in Multivariate Regressions with Application to Asset Pricing Models

We study the problem of testing the error distribution in a multivariate linear regression (MLR) model. The tests are functions of appropriately standardized multivariate least squares residuals whose distribution is invariant to the unknown cross-equation error covariance matrix. Empirical multivariate skewness and kurtosis criteria are then compared to simulation-based estimate of their expected value under the hypothesized distribution. Special cases considered include testing multivariate normal, Student t; normal mixtures and stable error models. In the Gaussian case, finite-sample versions of the standard multivariate skewness and kurtosis tests are derived. To do this, we exploit simple, double and multi-stage Monte Carlo test methods. For non-Gaussian distribution families involving nuisance parameters, confidence sets are derived for the the nuisance parameters and the error distribution. The procedures considered are evaluated in a small simulation experi-ment. Finally, the tests are applied to an asset pricing model with observable risk-free rates, using monthly returns on New York Stock Exchange (NYSE) portfolios over five-year subperiods from 1926-1995.

Identification, Weak Instruments and Statistical Inference in Econometrics

We discuss statistical inference problems associated with identification and testability in econometrics, and we emphasize the common nature of the two issues. After reviewing the relevant statistical notions, we consider in turn inference in nonparametric models and recent developments on weakly identified models (or weak instruments). We point out that many hypotheses, for which test procedures are commonly proposed, are not testable at all, while some frequently used econometric methods are fundamentally inappropriate for the models considered. Such situations lead to ill-defined statistical problems and are often associated with a misguided use of asymptotic distributional results. Concerning nonparametric hypotheses, we discuss three basic problems for which such difficulties occur: (1) testing a mean (or a moment) under (too) weak distributional assumptions; (2) inference under heteroskedasticity of unknown form; (3) inference in dynamic models with an unlimited number of parameters. Concerning weakly identified models, we stress that valid inference should be based on proper pivotal functions —a condition not satisfied by standard Wald-type methods based on standard errors — and we discuss recent developments in this field, mainly from the viewpoint of building valid tests and confidence sets. The techniques discussed include alternative proposed statistics, bounds, projection, split-sampling, conditioning, Monte Carlo tests. The possibility of deriving a finite-sample distributional theory, robustness to the presence of weak instruments, and robustness to the specification of a model for endogenous explanatory variables are stressed as important criteria assessing alternative procedures.

Exact Multivariate Tests of Asset Pricing Models with Stable Asymmetric Distributions

In this paper, we propose exact inference procedures for asset pricing models that can be formulated in the framework of a multivariate linear regression (CAPM), allowing for stable error distributions. The normality assumption on the distribution of stock returns is usually rejected in empirical studies, due to excess kurtosis and asymmetry. To model such data, we propose a comprehensive statistical approach which allows for alternative - possibly asymmetric - heavy tailed distributions without the use of large-sample approximations. The methods suggested are based on Monte Carlo test techniques. Goodness-of-fit tests are formally incorporated to ensure that the error distributions considered are empirically sustainable, from which exact confidence sets for the unknown tail area and asymmetry parameters of the stable error distribution are derived. Tests for the efficiency of the market portfolio (zero intercepts) which explicitly allow for the presence of (unknown) nuisance parameter in the stable error distribution are derived. The methods proposed are applied to monthly returns on 12 portfolios of the New York Stock Exchange over the period 1926-1995 (5 year subperiods). We find that stable possibly skewed distributions provide statistically significant improvement in goodness-of-fit and lead to fewer rejections of the efficiency hypothesis.

Distribution-Free Bounds for Serial Correlation Coefficients in Heteroskedastic Symmetric Time Series

We consider the problem of testing whether the observations X1, ..., Xn of a time series are independent with unspecified (possibly nonidentical) distributions symmetric about a common known median. Various bounds on the distributions of serial correlation coefficients are proposed: exponential bounds, Eaton-type bounds, Chebyshev bounds and Berry-Esséen-Zolotarev bounds. The bounds are exact in finite samples, distribution-free and easy to compute. The performance of the bounds is evaluated and compared with traditional serial dependence tests in a simulation experiment. The procedures proposed are applied to U.S. data on interest rates (commercial paper rate).

Tests multiples simulés et tests de normalité basés sur plusieurs moments dans les modèles de régression

Cet article illustre l’applicabilité des méthodes de rééchantillonnage dans le cadre des tests multiples (simultanés), pour divers problèmes économétriques. Les hypothèses simultanées sont une conséquence habituelle de la théorie économique, de sorte que le contrôle de la probabilité de rejet de combinaisons de tests est un problème que l’on rencontre fréquemment dans divers contextes économétriques et statistiques. À ce sujet, on sait que le fait d’ignorer le caractère conjoint des hypothèses multiples peut faire en sorte que le niveau de la procédure globale dépasse considérablement le niveau désiré. Alors que la plupart des méthodes d’inférence multiple sont conservatrices en présence de statistiques non-indépendantes, les tests que nous proposons visent à contrôler exactement le niveau de signification. Pour ce faire, nous considérons des critères de test combinés proposés initialement pour des statistiques indépendantes. En appliquant la méthode des tests de Monte Carlo, nous montrons comment ces méthodes de combinaison de tests peuvent s’appliquer à de tels cas, sans recours à des approximations asymptotiques. Après avoir passé en revue les résultats antérieurs sur ce sujet, nous montrons comment une telle méthodologie peut être utilisée pour construire des tests de normalité basés sur plusieurs moments pour les erreurs de modèles de régression linéaires. Pour ce problème, nous proposons une généralisation valide à distance finie du test asymptotique proposé par Kiefer et Salmon (1983) ainsi que des tests combinés suivant les méthodes de Tippett et de Pearson-Fisher. Nous observons empiriquement que les procédures de test corrigées par la méthode des tests de Monte Carlo ne souffrent pas du problème de biais (ou sous-rejet) souvent rapporté dans cette littérature – notamment contre les lois platikurtiques – et permettent des gains sensibles de puissance par rapport aux méthodes combinées usuelles.

Inflation dynamics and the New Keynesian Phillips Curve: an identification robust econometric analysis

In this paper, we use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali and Gertler’s (1999) specification, on both U.S. and Canadian data. Two variants of the model are studied: one based on a rationalexpectations assumption, and a modification to the latter which consists in using survey data on inflation expectations. The results based on these two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (ii) the frequency of price adjustments. Overall, we find that there is some support for the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our findings underscore the need for employing identificationrobust inference methods in the estimation of expectations-based dynamic macroeconomic relations.