Kernel Conditional Moment Test via Maximum Moment Restriction
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We propose a new family of specification tests called kernel conditional moment (KCM) tests. Our tests are built on conditional moment embeddings (CMME)—a novel representation of conditional moment restrictions in a reproducing kernel Hilbert space (RKHS). After transforming the conditional moment restrictions into a continuum of unconditional counterparts, the test statistic is defined as the maximum moment restriction within the unit ball of the RKHS. We show that the CMME fully characterizes the original conditional moment restrictions, leading to consistency in both hypothesis testing and parameter estimation. The proposed test also has an analytic expression that is easy to compute as well as closed-form asymptotic distributions. Our empirical studies show that the KCM test has a promising finite-sample performance compared to existing tests.
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