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Robust Testing for Fractional Integration Using the Bootstrap

  • Andersson, Michael K.

    (Dept. of Economic Statistics, Stockholm School of Economics)

  • Gredenhoff, Mikael P.

    (Dept. of Economic Statistics, Stockholm School of Economics)

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    Asymptotic tests for fractional integration are usually badly sized in small samples, even for normally distributed processes. Furthermore, tests that are well-sized under normality may be severely distorted by non-normalities and ARCH errors. This paper demonstrates how the bootstrap can be implemented to correct for such size distortions. It is shown that a well-designed bootstrap test based on the MRR and GPH tests is exact, and a procedure based on the REG test is nearly exact.

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    Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 218.

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    Length: 19 pages
    Date of creation: 27 Jan 1998
    Date of revision:
    Handle: RePEc:hhs:hastef:0218
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    1. Horowitz, J.L., 1995. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Working Papers 95-10, University of Iowa, Department of Economics.
    2. Lo, Andrew W. (Andrew Wen-Chuan), 1989. "Long-term memory in stock market prices," Working papers 3014-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Joel L. Horowitz, 1996. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Econometrics 9602009, EconWPA, revised 05 Mar 1996.
    4. J. L. Horowitz, 1995. "Bootstrap Methods In Econometrics: Theory And Numerical Performance," SFB 373 Discussion Papers 1995,63, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    5. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
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