On the choice of instruments in mixed frequency specification tests

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Department of Mathematical Sciences


Time averaging has been the traditional approach to handle mixed sampling frequencies. However, it ignores information possibly embedded in high frequency. Mixed data sampling (MIDAS) regres-sion models provide a concise way to utilize the additional informa-tion in high-frequency variables. In this paper, we propose a specification test to choose between time averaging and MIDAS models, based on a Durbin-Wu-Hausman test. In particular, a set of instrumental variables is proposed and theoretically validated when the frequency ratio is large. As a result, our method tends to be more powerful than existing methods, as reconfirmed through the simulations.

Publication Title

Communications in Statistics - Theory and Methods