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Size and power properties of structural break unit root tests

  • Paresh Kumar Narayan

    ()

  • Stephan Popp

    ()

In this paper, we compare the small sample size and power properties of a newly developed endogenous structural break unit root test of Narayan and Popp (NP, 2010) with existing two break unit root tests, namely the Lumsdaine and Papell (LP, 1997) and the Lee and Strazicich (LS, 2003) tests. In contrast to the widely used LP and LS tests, the NP test chooses the break date by maximizing the significance of the break dummy coefficient. Using Monte Carlo simulations, we show that the NP test has better size and high power, and identifies the structural breaks accurately. Power and size comparisons of the NP test with the LP and LS tests reveal that the NP test is significantly superior.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/fin-econometrics/2011_07.pdf
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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Financial Econometics Series with number 2011_07.

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Length: 32
Date of creation: 29 Aug 2011
Date of revision:
Handle: RePEc:dkn:ecomet:fe_2011_07
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