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The Limiting Properties Of The Canova And Hansen Test Under Local Alternatives

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  • Kurozumi, Eiji

Abstract

This paper investigates the limiting properties of the Canova and Hansen test, testing for the null hypothesis of no unit root against seasonal unit roots, under a sequence of local alternatives with the model extended to have seasonal dummies and trends or no deterministic term and also only seasonal dummies. We derive the limiting distribution of the test statistic and its characteristic function under local alternatives. We find that the local limiting power is an inverse function of the spectral density at frequency π (π/2) when we test against a negative unit root (annual unit roots). We also theoretically show that the local limiting power of the Canova and Hansen test against a negative unit root (annual unit roots) does not increase when the true process has annual unit roots (a negative unit root) but not a negative unit root (annual unit roots), which has been observed in Monte Carlo simulations in such research as Caner (1998, Journal of Business and Economic Statistics 16, 349–356), Canova and Hansen (1995, Journal of Business and Economic Statistics 13, 237–252), and Hylleberg (1995, Journal of Econometrics 69, 5–25).

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  • Kurozumi, Eiji, 2002. "The Limiting Properties Of The Canova And Hansen Test Under Local Alternatives," Econometric Theory, Cambridge University Press, vol. 18(5), pages 1197-1220, October.
    • Handle: RePEc:cup:etheor:v:18:y:2002:i:05:p:1197-1220_18
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    Cited by:

    1. Anton Skrobotov, 2013. "On GLS-detrending for deterministic seasonality testing," Working Papers 0073, Gaidar Institute for Economic Policy, revised 2014.
    2. Ivan Letteri & Giuseppe Della Penna & Giovanni De Gasperis & Abeer Dyoub, 2022. "A Stock Trading System for a Medium Volatile Asset using Multi Layer Perceptron," Papers 2201.12286, arXiv.org.

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