Smooth Tests of Copula Specifications

We present a family of smooth tests for the goodness of fit of semiparametric multivariate copula models. The proposed tests are distribution free and can be easily implemented. They are diagnostic and constructive in the sense that when a null distribution is rejected, the test provides useful pointers to alternative copula distributions. We then propose a method of copula density construction, which can be viewed as a multivariate extension of Efron and Tibshirani (1996). We further generalize our methods to dynamic copula models of Chen and Fan (2006). We report extensive Monte Carlo simulations and three empirical examples to illustrate the effectiveness and usefulness of our method