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Exact Non-Parametric Tests for a Random Walk with Unknown Drift under Conditional Heteroscedasticity

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Author Info
Luger, Richard

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Abstract

This paper proposes a class of linear signed rank statistics to test for a random walk with unknown drift in the presence of arbitrary forms of conditional heteroscedasticity. The class considered includes analogues of the well-known sign and Wilcoxon test statistics. The exactness of the proposed tests rests only on the assumption that the errors are symmetrically distributed. No other assumptions, such as normality or even the existence of moments, are required. Simulations confirm the reliability of the proposed tests, and their power is superior to that of the parametric variance-ratio test. The inference methods developed are illustrated by a test of the random walk hypothesis in exchange rates for five major currencies against the U.S. dollar.

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File URL: http://www.bankofcanada.ca/en/res/wp/2001/wp01-2.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 01-2.

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Length: 35 pages
Date of creation: 2001
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Handle: RePEc:bca:bocawp:01-2

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Keywords: Econometric and statistical methods;

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Hallin, M. & Akker, R. van den & Werker, B.J.M., 2009. "A Class of Simple Semiparametrically Efficient Rank-Based Unit Root Tests," Discussion Paper 2009-2, Tilburg University, Center for Economic Research. [Downloadable!]
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  2. Paulo M. M. Rodrigues & Antonio Rubia, 2004. "On the Small Sample Properties of Dickey Fuller and Maximum Likelihood Unit Root Tests on Discrete-Sampled Short-Term Interest Rates," Econometrics 0405004, EconWPA. [Downloadable!]
    Other versions:
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