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Testing for a Unit Root in the Presence of a Jump Diffusion Process with GARCH Errors

Author

Listed:
  • Chew Lian Chua

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Sandy Suardi

    (School of Economics, The University of Queensland)

Abstract

The use of GARCH and jump models to capture asset price dynamics is ubiquitous in economics and finance literature. We show that the size of Breitung (2002) nonparametric unit root test is robust to the presence of jump and GARCH errors but not for the other standard unit root tests. The power performance of all tests, except for Phillips (1987) test, is fairly robust provided that the mean process is not nearly integrated.

Suggested Citation

  • Chew Lian Chua & Sandy Suardi, 2006. "Testing for a Unit Root in the Presence of a Jump Diffusion Process with GARCH Errors," Melbourne Institute Working Paper Series wp2006n28, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2006n28
    as

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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2006n28.pdf
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    References listed on IDEAS

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