Bootstrap and fast double bootstrap tests of cointegration rank with financial time series
The likelihood ratio test of cointegration rank is the most widely used test for cointegration. Many studies have shown that its finite sample distribution is not well approximated by the limiting distribution. Bootstrap and fast double bootstrap (FDB) algorithms for the likelihood ratio test are introduced and evaluated by Monte Carlo simulation experiments. It is found that the performance of the ordinary (single) bootstrap test is in most cases good in terms of the size of the test. The FDB produces a further improvement in cases where the performance of the asymptotic test is unsatisfactory and the single bootstrap test overrejects noticeably. The FDBÂ is shown to be a useful supplement to the single bootstrap as a tool for determining the cointegration rank. The tests are applied to US interest rates and international stock prices series. By simulating the data assuming that the cointegration rank is known, it is found that the asymptotic test tends to overestimate the cointegration rank, while the bootstrap and FDB tests choose the correct cointegration rank.
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.
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.
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.:
- MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999.
"Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
- James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers 1996_07, York University, Department of Economics.
- Mackinnon, J.G. & Haug, A.A. & Michelis, L., 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," G.R.E.Q.A.M. 96a09, Universite Aix-Marseille III.
- Ruiz, Esther & Pascual, Lorenzo, 2002. " Bootstrapping Financial Time Series," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 271-300, July.
- van Giersbergen, Noud P A, 1996. "Bootstrapping the Trace Statistic in VAR Models: Monte Carlo Results and Applications," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 391-408, May.
- Jurgen A. Doornik & David F. Hendry & Bent Nielsen, 1998.
"Inference in Cointegrating Models: UK M1 Revisited,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 12(5), pages 533-572, December.
- Doornik, Jurgen A & Hendry, David F & Nielsen, Bent, 1998. " Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-572, December.
- Bent Nielsen, 2004. "On the Distribution of Likelihood Ratio Test Statistics for Cointegration Rank," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 1-23.
- Paparoditis, Efstathios & Politis, Dimitris N., 2005. "Bootstrapping Unit Root Tests for Autoregressive Time Series," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 545-553, June.
- Pieter Omtzigt & Stefano Fachin, 2006. "The Size and Power of Bootstrap and Bartlett-Corrected Tests of Hypotheses on the Cointegrating Vectors," Econometric Reviews, Taylor & Francis Journals, vol. 25(1), pages 41-60.
- Davidson, Russell & MacKinnon, James G., 2007.
"Improving the reliability of bootstrap tests with the fast double bootstrap,"
Computational Statistics & Data Analysis,
Elsevier, vol. 51(7), pages 3259-3281, April.
- Russell Davidson & James Mackinnon, 2006. "Improving the reliability of bootstrap tests with the fast double bootstrap," Working Papers halshs-00439247, HAL.
- Russell Davidson & James G. MacKinnon, 2006. "Improving the Reliability of Bootstrap Tests with the Fast Double Bootstrap," Working Papers 1044, Queen's University, Department of Economics.
- Russell Davidson & James G. MacKinnon, 2001.
"Bootstrap Tests: How Many Bootstraps?,"
1036, Queen's University, Department of Economics.
- 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 116-126, February.
- Anders Rygh Swensen, 2006. "Bootstrap Algorithms for Testing and Determining the Cointegration Rank in VAR Models -super-1," Econometrica, Econometric Society, vol. 74(6), pages 1699-1714, November.
- Hansen, Bruce E, 1994.
"Autoregressive Conditional Density Estimation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 705-730, August.
- Hansen, B.E., 1992. "Autoregressive Conditional Density Estimation," RCER Working Papers 322, University of Rochester - Center for Economic Research (RCER).
- Tom Doan, "undated". "RATS programs to replicate Hansen's GARCH models with time-varying t-densities," Statistical Software Components RTZ00086, Boston College Department of Economics.
- Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
- Russell Davidson & James G. MacKinnon, 2004.
"The Power of Bootstrap and Asymptotic Tests,"
1035, Queen's University, Department of Economics.
- Niklas Ahlgren & Jan Antell, 2002. "Testing for cointegration between international stock prices," Applied Financial Economics, Taylor & Francis Journals, vol. 12(12), pages 851-861.
- Soren Johansen, 2002. "A Small Sample Correction for the Test of Cointegrating Rank in the Vector Autoregressive Model," Econometrica, Econometric Society, vol. 70(5), pages 1929-1961, September.
- Harris, R. I. D. & Judge, G., 1998. "Small sample testing for cointegration using the bootstrap approach," Economics Letters, Elsevier, vol. 58(1), pages 31-37, January.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
When requesting a correction, please mention this item's handle: RePEc:eee:csdana:v:52:y:2008:i:10:p:4754-4767. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
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.