Testing for Serial Dependence in Binomial Time Series I: Parameter Driven Models

TL;DR

This paper develops score tests for detecting latent processes and serial dependence in binomial time series, addressing issues of inconsistency in logistic regression estimates and providing methods for accurate inference.

Contribution

It introduces novel score tests for latent process existence and serial dependence, applicable to binomial time series with complex nuisance parameters.

Findings

Score tests effectively detect latent processes and serial dependence.

Simulation confirms asymptotic properties and test accuracy.

Application demonstrates practical utility in binary and binomial series.

Abstract

Binomial time series in which the logit of the probability of success is modelled as a linear function of observed regressors and a stationary latent Gaussian process are considered. Score tests are developed to first test for the existence of a latent process and, subsequent to that, evidence of serial dependence in that latent process. The test for the existence of a latent process is important because, if one is present, standard logistic regression methods will produce inconsistent estimates of the regression parameters. However the score test is non-standard and any serial dependence in the latent process will require consideration of nuisance parameters which cannot be estimated under the null hypothesis of no latent process. The paper describes how a supremum-type test can be applied. If a latent process is detected, consistent estimation of its variance and the regression parameters can be done using marginal estimation which is easily implemented using generalised linear mixed model methods. The test for serial dependence in a latent process does not involve nuisance parameters and is based on the covariances between residuals centered at functions of the latent process conditional on the observations. This requires numerical integration in order to compute the test statistic. Relevant asymptotic results are derived and confirmed using simulation evidence. Application to binary and binomial time series is made. For binary series in particular, a complication is that the variance of the latent process, even if present, can be estimated to be zero with a high probability.