IDEAS home Printed from https://ideas.repec.org/p/esy/uefcwp/18832.html

Unit Root Tests and Heavy-Tailed Innovations

Author

Listed:
  • Georgiev, I
  • Rodrigues, PMM
  • Taylor, AMR

Abstract

We evaluate the impact of heavy-tailed innovations on some popular unit root tests. In the context of a near-integrated series driven by linear-process shocks, we demonstrate that their limiting distributions are altered under in nite variance vis-�-vis finite variance. Reassuringly, however, simulation results suggest that the impact of heavy-tailed innovations on these tests are relatively small. We use the framework of Amsler and Schmidt (2012) whereby the innovations have local-to- nite variances being generated as a linear combination of draws from a thin- tailed distribution (in the domain of attraction of the Gaussian distribution) and a heavy-tailed distribution (in the normal domain of attraction of a stable law). We also explore the properties of ADF tests which employ Eicker-White standard errors, demonstrating that these can yield significant power improvements over conventional tests.

Suggested Citation

  • Georgiev, I & Rodrigues, PMM & Taylor, AMR, 2017. "Unit Root Tests and Heavy-Tailed Innovations," Essex Finance Centre Working Papers 18832, University of Essex, Essex Business School.
    • Handle: RePEc:esy:uefcwp:18832
    as

    Download full text from publisher

    File URL: https://repository.essex.ac.uk/18832/
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fatma Ozgu Serttas, 2018. "Infinite-Variance Error Structure in Finance and Economics," International Econometric Review (IER), Econometric Research Association, vol. 10(1), pages 14-23, April.
    2. Paulo M.M. Rodrigues & Matei Demetrescu, 2018. "Testing the fractionally integrated hypothesis using M estimation: With an application to stock market volatility," Working Papers w201817, Banco de Portugal, Economics and Research Department.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:esy:uefcwp:18832. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nikolaos Vlastakis The email address of this maintainer does not seem to be valid anymore. Please ask Nikolaos Vlastakis to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/fcessuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.