A generalized stepwise procedure with improved power for multiple inequalities testing

Yu Chin Hsu, Chung Ming Kuan, Meng Feng Yen

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

We propose a stepwise test, Step-SPA(k), for multiple inequalities testing. This test is analogous to the Step-SPA test of Hsu, Hsu, and Kuan (2010, J. Empirical Econ., 17, 471-484) but has asymptotic control of a generalized familywise error rate: the probability of at least k false rejections. This test improves Step-RC(k) of Romano and Wolf (2007, Ann. Stat., 35, 1378-1408) by avoiding the least favorable configuration used in Step-RC(k). We show that the proposed Step- SPA(k) test is consistent and more powerful than Step-RC(k) under any power notion defined in Romano and Wolf (2005, Econometrica, 73, 1237-1282). An empirical study on Commodity Trading Advisor fund performance is then provided to illustrate the Step-SPA(k) test. Finally, we extend Step-SPA(k) to a procedure that asymptotically controls the false discovery proportion, the ratio of the number of false rejections over the number of total rejections, and show that it is more powerful than the corresponding procedure proposed by Romano and Wolf (2007, Ann. Stat., 35, 1378-1408).

Original languageEnglish
Article numbernbu014
Pages (from-to)730-755
Number of pages26
JournalJournal of Financial Econometrics
Volume12
Issue number4
DOIs
Publication statusPublished - 2014 Sep 1

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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