Specification Sensitivity in Right-Tailed Unit Root Testing for Explosive Behavior
Right-tailed unit root tests have proved promising for detecting exuberance in economic and ﬁnancial activities. Like left-tailed tests, the limit theory and test performance are sensitive to the null hypothesis and the model speciﬁcation used in parameter estimation. This paper aims to provide some empirical guidelines for the practical implementation of right-tailed unit root tests, focussing on the sup ADF test of Phillips, Wu and Yu (2011), which implements a right- tailed ADF test repeatedly on a sequence of forward sample recursions. We analyze and compare the limit theory of the sup ADF test under diﬀerent hypotheses and model speciﬁcations. The size and power properties of the test under various scenarios are examined in simulations and some recommendations for empirical practice are given. Empirical applications to the Nasdaq and to Australian and New Zealand housing data illustrate these speciﬁcation issues and reveal their practical importance in testing.
|Date of creation:||Nov 2011|
|Publication status:||Published in SMU Economics and Statistics Working Paper Series|
|Contact details of provider:|| Postal: 90 Stamford Road, Singapore 178903|
Phone: 65-6828 0832
Fax: 65-6828 0833
Web page: http://www.economics.smu.edu.sg/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Phillips, Peter C.B. & Magdalinos, Tassos, 2007.
"Limit theory for moderate deviations from a unit root,"
Journal of Econometrics,
Elsevier, vol. 136(1), pages 115-130, January.
- Peter C.B. Phillips & Tassos Magdalinos, 2004. "Limit Theory for Moderate Deviations from a Unit Root," Cowles Foundation Discussion Papers 1471, Cowles Foundation for Research in Economics, Yale University.
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Tom Doan, "undated". "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Peter C.B. Phillips & Shu-Ping Shi & Jun Yu, 2012.
"Testing for Multiple Bubbles,"
Cowles Foundation Discussion Papers
1843, Cowles Foundation for Research in Economics, Yale University.
- Peter C. B. Phillips & Shu-Ping Shi & Jun Yu, 2012. "Testing for Multiple Bubbles," Working Papers 13-2012, Singapore Management University, School of Economics.
- Peter C.B. Phillips & Shu-Ping Shi & Jun Yu, 2011. "Testing for Multiple Bubbles," Working Papers 09-2011, Singapore Management University, School of Economics.
- Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-930, September.
- Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-530, June.
When requesting a correction, please mention this item's handle: RePEc:siu:wpaper:15-2011. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (QL THor)
If references are entirely missing, you can add them using this form.