Testing the martingale difference hypothesis using martingale difference divergence function
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We consider the problem of testing for the martingale difference hypothesis for univariate strictly stationary time series by implementing a novel test for conditional mean independence based on the concept of martingale difference divergence. The martingale difference divergence function allows us to measure the degree to which a certain variable is conditionally mean dependent upon its past values: in particular, it does so by computing the regularized norm of the covariance between the current value of the variable and the characteristic function of its past values. In this paper, we make use of such a concept, along with the theoretical framework of generalized spectral density, to construct a Ljung-Box type test for the martingale difference hypothesis. In addition to the results obtained with the implementation of the test statistic, we proceed to show some asymptotics for martingale difference divergence in the time series framework.
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