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A class of simple distribution-free rank-based unit root tests

  • Marc Hallin

    ()

    (Tilburg University - Tilburg University)

  • Ramon van den Akker

    ()

    (Tilburg University - Tilburg University)

  • Bas J.M. Werker

    ()

    (Tilburg University - Tilburg University)

We propose a class of distribution-free rank-based tests for the null hypothesis of a unit root. This class is indexed by the choice of a , which needs not coincide with the unknown actual innovation density . The validity of these tests, in terms of exact finite sample size, is guaranteed, irrespective of the actual underlying density, by distribution-freeness. Those tests are locally and asymptotically optimal under a particular asymptotic scheme, for which we provide a complete analysis of asymptotic relative efficiencies. Rather than asymptotic optimality, however, we emphasize finite-sample performances, which, quite heavily, also depend on initial values. It appears that our rank-based tests significantly outperform the traditional Dickey-Fuller tests, as well as the more recent procedures proposed by Elliot, Rothenberg, and Stock (1996), Ng and Perron (2001), and Elliott and Müller (2006), for a broad range of initial values and for heavy-tailed innovation densities. As such, they provide a useful complement to existing techniques.

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Paper provided by HAL in its series Post-Print with number peer-00834424.

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Date of creation: 15 Jun 2011
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Publication status: Published, Journal of Econometrics, 2011
Handle: RePEc:hal:journl:peer-00834424
Note: View the original document on HAL open archive server: http://peer.ccsd.cnrs.fr/peer-00834424
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