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Recursive adjusted unit root tests under non-stationary volatility

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Listed:
  • Wang, Shaoping
  • Li, Yanglin
  • Wen, Kuangyu

Abstract

This study concerns the effect of non-stationary volatility on unit root tests with a structural break in which the deterministic component is recursively adjusted. We derive the asymptotic distributions of our proposed test statistics. Simulations show the new test has good finite sample performances under non-stationary volatility. Applying to the China and US stock markets during the 2018 Sino-US trade conflict, we find that both stock indexes are unit root processes with a structural break in intercept and trend. This corresponds to the day when the US and China agree on a 90-day halt to new tariffs.

Suggested Citation

  • Wang, Shaoping & Li, Yanglin & Wen, Kuangyu, 2021. "Recursive adjusted unit root tests under non-stationary volatility," Economics Letters, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:ecolet:v:205:y:2021:i:c:s0165176521002184
    DOI: 10.1016/j.econlet.2021.109941
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    References listed on IDEAS

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    More about this item

    Keywords

    Sino-US trade conflict; Recursive adjustment; Non-stationary volatility; Unit root tests; Structural break;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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