A new omnibus test of fit based on a characterisation of the uniform distribution

TL;DR

This paper introduces a new omnibus goodness-of-fit test based on characterising the uniform distribution, with strong theoretical backing, quick convergence, and competitive power in various distribution testing scenarios, including financial data.

Contribution

The paper proposes a novel goodness-of-fit test based on a uniform distribution characterisation, with detailed asymptotic theory and demonstrated effectiveness in simple and composite hypotheses.

Findings

Test converges quickly to asymptotic distribution

Test is consistent against all fixed alternatives

Competitive power in finite samples across multiple distributions

Abstract

In this paper, we revisit the classical goodness-of-fit problems for univariate distributions; we propose a new testing procedure based on a characterisation of the uniform distribution. Asymptotic theory for the simple hypothesis case is provided in a Hilbert-Space setting, including the asymptotic null distribution as well as values for the first four cumulants of this distribution, which are used to fit a Pearson system of distributions as an approximation to the limit distribution. Numerical results indicate that the null distribution of the test converges quickly to its asymptotic distribution, making the critical values obtained using the Pearson system particularly useful. Consistency of the test is shown against any fixed alternative distribution and we derive the limiting behaviour under fixed alternatives with an application to power approximation. We demonstrate the applicability of the newly proposed test when testing composite hypotheses. A Monte Carlo power study compares the finite sample power performance of the newly proposed test to existing omnibus tests in both the simple and composite hypothesis settings. This power study includes results related to testing for the uniform, normal and Pareto distributions. The empirical results obtained indicate that the test is competitive. An application of the newly proposed test in financial modelling is also included.