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When Are Variance Ratio Tests for Serial Dependence Optimal?

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  • Faust, Jon

Abstract

This paper considers a class of statistics that can be written as the ratio of the sample variance of a filtered time series to the sample variance of the original series. Any such statistic is shown to be optimal under normality for testing a null of white noise against some class of serially dependent alternatives. A simple characterization of the alternative class is provided. The results are used to show that a variance ratio test for mean reversion is an optimal test and to illustrate the forms of mean reversion it is best at detecting. Copyright 1992 by The Econometric Society.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 60 (1992)
Issue (Month): 5 (September)
Pages: 1215-26

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Handle: RePEc:ecm:emetrp:v:60:y:1992:i:5:p:1215-26

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Cited by:
  1. Lunde A. & Timmermann A., 2004. "Duration Dependence in Stock Prices: An Analysis of Bull and Bear Markets," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 253-273, July.
  2. Ronen, Tavy, 1998. "Trading structure and overnight information: A natural experiment from the Tel-Aviv Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 489-512, May.
  3. Deo, Rohit S. & Chen, Willa W., 2003. "The Variance Ratio Statistic at Large Horizons," Papers 2004,04, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
  4. Wang, Yuming & Ma, Jinpeng, 2014. "Excess volatility and the cross-section of stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 1-16.
  5. Amélie Charles & Olivier Darne, 2009. "Variance ratio tests of random walk: An overview," Post-Print hal-00771078, HAL.
  6. Patrick A. Groenendijk & André Lucas & Casper G. de Vries, 1998. "A Hybrid Joint Moment Ratio Test for Financial Time Series," Tinbergen Institute Discussion Papers 98-104/2, Tinbergen Institute.
  7. John Y. Campbell, 1993. "Why Long Horizons: A Study of Power Against Persistent Alternatives," NBER Technical Working Papers 0142, National Bureau of Economic Research, Inc.
  8. Daniel, Kent, 2001. "The power and size of mean reversion tests," Journal of Empirical Finance, Elsevier, vol. 8(5), pages 493-535, December.
  9. Benjamin Miranda Tabak & Eduardo José Araújo Lima, 2002. "The Effects of the Brazilian ADRs Program on Domestic Market Efficiency," Working Papers Series 43, Central Bank of Brazil, Research Department.
  10. Willa Chen & Rohit Deo, 2005. "The Variance Ratio Statistic at large Horizons," Econometrics 0501003, EconWPA.
  11. Graflund, Andreas, 2001. "Some Time Serial Properties of the Swedish Real Estate Stock Market, 1939-1998," Working Papers 2001:8, Lund University, Department of Economics.
  12. Diebold, Francis X. & Lindner, Peter, 1996. "Fractional integration and interval prediction," Economics Letters, Elsevier, vol. 50(3), pages 305-313, March.
  13. Cosme Vodounou, 1998. "Inférence fondée sur les statistiques des rendements de long terme," CIRANO Working Papers 98s-20, CIRANO.
  14. Shively, Philip A., 2002. "An exact invariant variance ratio test," Economics Letters, Elsevier, vol. 75(3), pages 347-353, May.
  15. Simone Bianco & Roberto Ren\'o, 2006. "Unexpected volatility and intraday serial correlation," Papers physics/0610023, arXiv.org.
  16. Choi, In, 1999. "Testing the Random Walk Hypothesis for Real Exchange Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(3), pages 293-308, May-June.

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