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LM tests for unit roots in the presence of missing observations: small sample evidence1Earlier versions of this paper were presented at the European Meeting of the Econometric Society, Toulouse, August 1997, and the International Congress on Modelling and Simulation MODSIM97, University of Tasmania, December 1997.1

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  • Toda, Hiro Y.
  • McKenzie, C.R.

Abstract

The purpose of this paper is to derive the asymptotic distributions of some Lagrange Multiplier (LM) tests for unit roots in time series models in the presence of missing observations, and to provide evidence on the small sample properties of these tests. LM tests for a unit root in a first-order autoregressive process for two types of null and alternative hypotheses are considered: a unit root without drift versus level stationarity, and a unit root with drift versus trend stationarity. Modifications of the tests to account for serially correlated errors are suggested. The small sample size and power properties of the tests are investigated using a Monte Carlo simulation.

Suggested Citation

  • Toda, Hiro Y. & McKenzie, C.R., 1999. "LM tests for unit roots in the presence of missing observations: small sample evidence1Earlier versions of this paper were presented at the European Meeting of the Econometric Society, Toulouse, August 1997, and the International Congress on Modellin," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 48(4), pages 457-468.
    • Handle: RePEc:eee:matcom:v:48:y:1999:i:4:p:457-468
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    References listed on IDEAS

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    1. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    2. Schmidt, Peter & Lee, Junsoo, 1991. "A modification of the Schmidt-Phillips unit root test," Economics Letters, Elsevier, vol. 36(3), pages 285-289, July.
    3. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    4. G. C. Lim & C. R. McKenzie, 1998. "Testing the rationality of expectations in the Australian foreign exchange market using survey data with missing observations," Applied Financial Economics, Taylor & Francis Journals, vol. 8(2), pages 181-190.
    5. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-287, August.
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