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Testing for Cointegration with Temporally Aggregated and Mixed-frequency Time Series

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Abstract

We examine the effects of mixed sampling frequencies and temporal aggregation on standard tests for cointegration. While it is well known that aggregation and sampling frequency do not affect the long-run properties of time series, we find that the effects of aggregation on the size of the tests may be severe. Matching sampling schemes of all series generally reduces size, and the nominal size is obtained when all series are skip-sampled in the same way -- e.g., end-of-period sampling. When matching all schemes is not feasible, the size of the likelihood-based trace test may be improved by using a mixed-frequency model rather than an aggregated model. However, a mixed-frequency strategy may not improve the size distortion of residual-based cointegration tests compared to aggregated series. We test stock prices and dividends for cointegration as an empirical demonstration of the size distortion.

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File URL: http://economics.missouri.edu/working-papers/2013/WP1307_miller.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1307.

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Length: 31 pgs.
Date of creation: 28 Jun 2013
Date of revision:
Handle: RePEc:umc:wpaper:1307

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Keywords: temporal aggregation; mixed sampling frequencies; cointegration; trace test; residual-based cointegration test;

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References

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  3. J. Isaac Miller, 2012. "Mixed-frequency Cointegrating Regressions with Parsimonious Distributed Lag Structures," Working Papers 1211, Department of Economics, University of Missouri.
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Cited by:
  1. Götz, Thomas B. & Hecq, Alain, 2014. "Nowcasting causality in mixed frequency vector autoregressive models," Economics Letters, Elsevier, vol. 122(1), pages 74-78.

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