ASYMPTOTIC DISTRIBUTION OF THE ESTIMATED BDS STATISTIC AND RESIDUAL ANALYSIS OF AR MODELS ON THE CANADIAN LYNX DATA

Abstract

The Brock–Dechert–Scheinkman (BDS) statistic is a nonparametric statistic based on correlation integral for testing independence. It has a special ability to identify dependence in a given time series generated by some simple dynamic systems when many conventional test statistics are not able to distinguish this type of time series from observations of independent, identically distributed (IID) random variables. Using the contiguity property derived from the local asymptotic normality for the log-likelihood ratio of nonlinear autoregressive processes, we prove the central limit theorem for the estimated BDS statistic on the residuals of fitting nonlinear autoregressive models. Comparative studies on the BDS statistic and some other nonparametric statistics on simulated time series and residuals from the AR models on the Canadian lynx are also provided in this paper.