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A Comparison of Semiparametric Tests for Fractional Cointegration

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  • Leschinski, Christian
  • Voges, Michelle
  • Sibbertsen, Philipp

Abstract

There are various competing procedures to determine whether fractional cointegration is present in a multivariate time series, but no standard approach has emerged. We provide a synthesis of this literature and conduct a detailed comparative Monte Carlo study to guide empirical researchers in their choice of appropriate methodologies. Special attention is paid on empirically relevant issues such as assumptions about the form of the underlying process and the ability of the procedures to distinguish between short-run correlation and long-run equilibria. It is found that several approaches are severely oversized in presence of correlated short-run components and that the methods show different performance in terms of power when applied to common-component models instead of triangular systems.

Suggested Citation

  • Leschinski, Christian & Voges, Michelle & Sibbertsen, Philipp, 2019. "A Comparison of Semiparametric Tests for Fractional Cointegration," Hannover Economic Papers (HEP) dp-651, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-651
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    References listed on IDEAS

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    1. Søren Johansen & Morten Ørregaard Nielsen, 2012. "Likelihood Inference for a Fractionally Cointegrated Vector Autoregressive Model," Econometrica, Econometric Society, vol. 80(6), pages 2667-2732, November.
    2. Søren Johansen & Morten Ørregaard Nielsen, 2019. "Nonstationary Cointegration in the Fractionally Cointegrated VAR Model," Journal of Time Series Analysis, Wiley Blackwell, vol. 40(4), pages 519-543, July.
    3. Lobato, Ignacio N., 1999. "A semiparametric two-step estimator in a multivariate long memory model," Journal of Econometrics, Elsevier, vol. 90(1), pages 129-153, May.
    4. Morten Ørregaard Nielsen & Per Frederiksen, 2011. "Fully modified narrow‐band least squares estimation of weak fractional cointegration," Econometrics Journal, Royal Economic Society, vol. 14(1), pages 77-120, February.
    5. Nielsen, Morten Ørregaard, 2010. "Nonparametric cointegration analysis of fractional systems with unknown integration orders," Journal of Econometrics, Elsevier, vol. 155(2), pages 170-187, April.
    6. Avarucci, Marco & Velasco, Carlos, 2009. "A Wald test for the cointegration rank in nonstationary fractional systems," Journal of Econometrics, Elsevier, vol. 151(2), pages 178-189, August.
    7. Breitung, Jorg & Hassler, Uwe, 2002. "Inference on the cointegration rank in fractionally integrated processes," Journal of Econometrics, Elsevier, vol. 110(2), pages 167-185, October.
    8. Morten Oerregaard Nielsen, "undated". "Local Whittle Analysis of Stationary Fractional Cointegration," Economics Working Papers 2002-8, Department of Economics and Business Economics, Aarhus University.
    9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    10. Flores, Renato Jr. & Szafarz, Ariane, 1996. "An enlarged definition of cointegration," Economics Letters, Elsevier, vol. 50(2), pages 193-195, February.
    11. Nielsen, Morten Orregaard & Shimotsu, Katsumi, 2007. "Determining the cointegrating rank in nonstationary fractional systems by the exact local Whittle approach," Journal of Econometrics, Elsevier, vol. 141(2), pages 574-596, December.
    12. Zhang, Rongmao & Robinson, Peter & Yao, Qiwei, 2019. "Identifying cointegration by eigenanalysis," LSE Research Online Documents on Economics 87431, London School of Economics and Political Science, LSE Library.
    13. Nielsen, Morten Ørregaard, 2009. "A Powerful Test Of The Autoregressive Unit Root Hypothesis Based On A Tuning Parameter Free Statistic," Econometric Theory, Cambridge University Press, vol. 25(6), pages 1515-1544, December.
    14. Clifford M. Hurvich & Willa W. Chen, 2000. "An Efficient Taper for Potentially Overdifferenced Long‐memory Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 21(2), pages 155-180, March.
    15. Hualde, Javier, 2013. "A simple test for the equality of integration orders," Economics Letters, Elsevier, vol. 119(3), pages 233-237.
    16. Hassler, Uwe & Breitung, Jörg, 2006. "A Residual-Based Lm-Type Test Against Fractional Cointegration," Econometric Theory, Cambridge University Press, vol. 22(6), pages 1091-1111, December.
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    Cited by:

    1. Christian Leschinski & Michelle Voges & Philipp Sibbertsen, 2021. "Integration and Disintegration of EMU Government Bond Markets," Econometrics, MDPI, Open Access Journal, vol. 9(1), pages 1-17, March.
    2. Theoplasti Kolaiti & Mwasi Mboya & Philipp Sibbertsen, 2020. "Volatility Transmission across Financial Markets: A Semiparametric Analysis," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 13(8), pages 1-13, July.
    3. Dräger, Lena & Kolaiti, Theoplasti & Sibbertsen, Philipp, 2020. "Measuring Macroeconomic Convergence and Divergence within EMU Using Long Memory," Hannover Economic Papers (HEP) dp-675, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Feb 2021.

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    More about this item

    Keywords

    Long Memory; Fractional Cointegration; Semiparametric Estimation and Testing;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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