Advanced Search
MyIDEAS: Login

Nonparametric cointegration analysis of fractional systems with unknown integration orders

Contents:

Author Info

  • Nielsen, Morten Ørregaard

Abstract

In this paper a nonparametric variance ratio testing approach is proposed for determining the cointegration rank in fractionally integrated systems. The test statistic is easily calculated without prior knowledge of the integration order of the data, the strength of the cointegrating relations, or the cointegration vector(s). The latter property makes it easier to implement than regression-based approaches, especially when examining relationships between several variables with possibly multiple cointegrating vectors. Since the test is nonparametric, it does not require the specification of a particular model and is invariant to short-run dynamics. Nor does it require the choice of any smoothing parameters that change the test statistic without being reflected in the asymptotic distribution. Furthermore, a consistent estimator of the cointegration space can be obtained from the procedure. The asymptotic distribution theory for the proposed test is non-standard but easily tabulated or simulated. Monte Carlo simulations demonstrate excellent finite sample properties, even rivaling those of well-specified parametric tests. The proposed methodology is applied to the term structure of interest rates, where, contrary to both fractional- and integer-based parametric approaches, evidence in favor of the expectations hypothesis is found using the nonparametric approach.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VC0-4XFPR4P-1/2/8af7855ea8f79dd7ff13cb1d2768dbc7
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 155 (2010)
Issue (Month): 2 (April)
Pages: 170-187

as in new window
Handle: RePEc:eee:econom:v:155:y:2010:i:2:p:170-187

Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Cointegration rank Cointegration space Fractional integration and cointegration Interest rates Long memory Nonparametric Term structure Variance ratio;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hualde, J. & Robinson, P.M., 2007. "Root-n-consistent estimation of weak fractional cointegration," Journal of Econometrics, Elsevier, vol. 140(2), pages 450-484, October.
  2. Shintani, Mototsugu, 2001. "A simple cointegrating rank test without vector autoregression," Journal of Econometrics, Elsevier, vol. 105(2), pages 337-362, December.
  3. Breitung, Jorg & Taylor, A. M. Robert, 2003. "Corrigendum to "Nonparametric tests for unit roots and cointegration" [J. Econom. 108 (2002) 343-363]," Journal of Econometrics, Elsevier, vol. 117(2), pages 401-404, December.
  4. Taylor, A. M. Robert, 2005. "Variance ratio tests of the seasonal unit root hypothesis," Journal of Econometrics, Elsevier, vol. 124(1), pages 33-54, January.
  5. Harris, D., 1996. "Principal Components Analysis of Cointegrated Time Series," Monash Econometrics and Business Statistics Working Papers 2/96, Monash University, Department of Econometrics and Business Statistics.
  6. Breitung, Jorg & Hassler, Uwe, 2002. "Inference on the cointegration rank in fractionally integrated processes," Journal of Econometrics, Elsevier, vol. 110(2), pages 167-185, October.
  7. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  8. Willa Chen & Clifford Hurvich, 2004. "Semiparametric Estimation of Fractional Cointegrating Subspaces," Econometrics 0412007, EconWPA.
  9. Javier Hualde & Peter M Robinson, 2003. "Cointegration in Fractional Systems with Unkown Integration Orders," STICERD - Econometrics Paper Series /2003/449, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  10. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October.
  11. Søren Johansen & Morten Ørregaard Nielsen, 2010. "Likelihood inference for a nonstationary fractional autoregressive model," Working Papers 1172, Queen's University, Department of Economics.
  12. Snell, Andy, 1998. "Testing for r versus r-1 cointegrating vectors," Journal of Econometrics, Elsevier, vol. 88(1), pages 151-191, November.
  13. Robinson, Peter M. & Yajima, Yoshihiro, 2002. "Determination of cointegrating rank in fractional systems," Journal of Econometrics, Elsevier, vol. 106(2), pages 217-241, February.
  14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  15. Bierens, Herman J., 1997. "Nonparametric cointegration analysis," Journal of Econometrics, Elsevier, vol. 77(2), pages 379-404, April.
  16. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  17. Morten Ørregaard Nielsen, 2008. "A Powerful Test of the Autoregressive Unit Root Hypothesis Based on a Tuning Parameter Free Statistic," Working Papers 1185, Queen's University, Department of Economics.
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  19. Pagan, A.R. & Hall, A.D. & Martin, V., 1995. "Modelling the Term Structure," Papers 284, Australian National University - Department of Economics.
  20. Nielsen, Morten Orregaard & Shimotsu, Katsumi, 2007. "Determining the cointegrating rank in nonstationary fractional systems by the exact local Whittle approach," Journal of Econometrics, Elsevier, vol. 141(2), pages 574-596, December.
  21. Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
  22. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  23. Engsted, Tom & Tanggaard, Carsten, 1994. "Cointegration and the US term structure," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 167-181, January.
  24. Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
  25. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-26, February.
  26. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
  27. Marinucci, D. & Robinson, P. M., 2000. "Weak convergence of multivariate fractional processes," Stochastic Processes and their Applications, Elsevier, vol. 86(1), pages 103-120, March.
  28. Marc Henry & Paolo Zaffaroni, 2002. "The long range dependence paradigm for macroeconomics and finance," Discussion Papers 0102-19, Columbia University, Department of Economics.
  29. Chen, Willa W. & Hurvich, Clifford M., 2003. "Semiparametric Estimation of Multivariate Fractional Cointegration," Journal of the American Statistical Association, American Statistical Association, vol. 98, pages 629-642, January.
  30. Johansen, SØren, 2008. "A Representation Theory For A Class Of Vector Autoregressive Models For Fractional Processes," Econometric Theory, Cambridge University Press, vol. 24(03), pages 651-676, June.
  31. Phillips, P. C. B. & Ouliaris, S., 1988. "Testing for cointegration using principal components methods," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 205-230.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Luis A. Gil-Alana & Guglielmo Maria Caporale, 2012. "Fractional Integration and Cointegration in US Financial Time Series Data," Faculty Working Papers 12/12, School of Economics and Business Administration, University of Navarra.
  2. Katarzyna Lasak & Carlos Velasco, 2013. "Fractional cointegration rank estimation," CREATES Research Papers 2013-08, School of Economics and Management, University of Aarhus.
  3. Esben Hoeg & Per Frederiksen, 2006. "The Fractional OU Process: Term Structure Theory and Application," Computing in Economics and Finance 2006 194, Society for Computational Economics.
  4. Dechert, Andreas, 2012. "Variance Ratio Testing for Fractional Cointegration in Presence of Trends and Trend Breaks," MPRA Paper 41044, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:155:y:2010:i:2:p:170-187

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.