Econometrica: Sep 1985, Volume 53, Issue 5

Maximum Likelihood Specification Testing and Conditional Moment Tests

https://doi.org/0012-9682(198509)53:5<1047:MLSTAC>2.0.CO;2-4
p. 1047-1070

Whitney K. Newey

This paper examines the detection of misspecification in the context of maximum likelihood models. The power properties of specification tests based on moment conditions are explicitly considered. Tests of conditional moment restrictions are also discussed and are shown to be particularly useful when exogenous variables are present. The form of optimal conditional moment tests is presented. The general results are then applied to specification tests for probit.

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