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AN ASYMPTOTIC EXPANSION OF THE DISTRIBUTION OF THE DM TEST STATISTIC

This paper has three parts: theoretical results, simulations and an economic application. In the theoretical part, after the Distance Metric (DM) test statistic is expanded to the second order, the Edgeworth approximation of the distribution of the DM test statistic is derived and the Bartlett-type correction factor is obtained based on the results of Phillips and Park (1988) and Hansen (2006); in the simulation part, simple examples are given to illustrate the theoretical results; in the application part, the theoretical results are applied to study the covariance structures of earnings.