A Max-Correlation White Noise Test for Weakly Dependent Time Series

Abstract

This paper presents a bootstrapped p-value white noise test based on the maximum correlation, for a time series that may be weakly dependent under the null hypothesis. The time series may be prefiltered residuals. The test statistic is a normalized weighted maximum sample correlation coefficient, where the maximum lag increases at a rate slower than the sample size. We only require uncorrelatedness under the null hypothesis, along with a moment contraction dependence property that includes mixing and non-mixing sequences. We show Shao's (2011) dependent wild bootstrap is valid for a much larger class of processes than originally considered. It is also valid for residuals from a general class of parametric models as long as the bootstrap is applied to a first order expansion of the sample correlation. We prove the bootstrap is asymptotically valid without exploiting extreme value theory (standard in the literature) or recent Gaussian approximation theory. Finally, we extend Escanciano and Lobato's (2009) automatic maximum lag selection to our setting with an unbounded lag set that ensures a consistent white noise test, and find it works extremely well in controlled experiments.

Keywords: dependent wild bootstrap, maximum correlation, near epoch dependence, white noise test

JEL Classification: C12, C52