Residual-based test for fractional cointegration

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

11 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)43-46
Journal / PublicationEconomics Letters
Volume126
Publication statusPublished - 1 Jan 2015
Externally publishedYes

Abstract

By allowing deviations from equilibrium to follow a fractionally integrated process, the notion of fractional cointegration analysis encompasses a wide range of mean-reverting behaviors. For fractional cointegrations, asymptotic theories have been extensively studied, and numerous empirical studies have been conducted in finance and economics. But as far as testing for fractional cointegration is concerned, most of the testing procedures have restrictions on the integration orders of observed time series or integrating error and some tests involve determination of bandwidth. In this paper, a general fractional cointegration model with the observed series and the cointegrating error being fractional processes is considered, and a residual-based testing procedure for fractional cointegration is proposed. Under some regularity conditions, the test statistic has an asymptotic standard normal distribution under the null hypothesis of no fractional cointegration and diverges under the alternatives. This test procedure is easy to implement and works well in finite samples, as reported in a Monte Carlo experiment.

Research Area(s)

  • Asymptotic normal, Fractional cointegration, Monte Carlo experiment, Residual-based test

Bibliographic Note

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Citation Format(s)

Residual-based test for fractional cointegration. / Wang, Bin; Wang, Man; Chan, Ngai Hang.
In: Economics Letters, Vol. 126, 01.01.2015, p. 43-46.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review