Preprint version. Published in Journal of Applied Econometrics, Volume 6, Issue 2, April 1, 1991, pages 169-180.
This is the pre-peer reviewed version of the following article: Specification Tests Based on the Heterogeneous Generalized Gamma Model of Duration: With an Application to Kennan's Strike Data, Sanjiv Jaggia, Journal of Applied Econometrics, 6, Copyright © 1991 Wiley-Blackwell., which has been published in final form at http://dx.doi.org/10.1002/jae.3950060206.
NOTE: At the time of publication, the author Sanjiv Jaggia was not yet affiliated with Cal Poly.
In this paper, tests for neglected heterogeneity and functional form misspeciftcation of some commonly used parametric distributions are derived within a heterogeneous generalized gamma model. It is argued that the conventional test of heterogeneity may not be valid when the underlying hazard function is misspecified. Hence, if the estimated hazard function is deemed restrictive, tests for functional form misspecification should accompany any test of heterogeneity. An empirical illustration based on Kennan's (1985) model of strikes is used to show that incorrect inferences may be drawn, as in a number of previous analyses, if the relevant restrictions are not tested jointly.