Generalized method of moments specification testing (Q1084826)

This article analyzes the asymptotic power properties of the class of specification tests which are based on a finite set of moment conditions. It is found that for such tests there are misspecification directions for which the power of the test does not go to one as the sample size grows. With restrictions on the form of misspecification, optimal moment tests are derived. It was shown that all moment tests with maximal degrees of freedom are asymptotically equivalent.