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Advancing the iid Test Based on Integration across the Correlation Integral: Ranges, Competition, and Power

Author

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  • Evzen Kocenda

    (CERGE-EI)

  • Lubos Briatka

    (CERGE-EI)

Abstract

This paper builds on Kočenda (2001) and extends it in two ways. First, two new intervals of the proximity parameter ε (over which the correlation integral is calculated) are specified. For these ε- ranges new critical values for various lengths of the data sets are introduced and through Monte Carlo studies it is shown that within new ε-ranges the test is even more powerful than within the original ε-range. A sensitivity analysis of the critical values with respect to ε-range choice is also given. Second, a comparison with existing results of the controlled competition of Barnett et al. (1997) as well as broad power tests on various nonlinear and chaotic data are provided. The results of the comparison strongly favor our robust procedure and confirm the ability of the test in finding nonlinear dependencies. An empirical comparison of the new ε-ranges with the original one shows that the test within the new ε-ranges is able to detect hidden patterns with much higher precision. Finally, new user-friendly and fast software is introduced.

Suggested Citation

  • Evzen Kocenda & Lubos Briatka, 2004. "Advancing the iid Test Based on Integration across the Correlation Integral: Ranges, Competition, and Power," Econometrics 0409001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:0409001
    Note: Type of Document - pdf; pages: 40. Paper has the link to a webpage to download the software.
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    2. Onour, Ibrahim, 2011. "Does credit for equity investments feedback on stock market volatility? Evidence from an emerging stock market," MPRA Paper 28001, University Library of Munich, Germany.
    3. Luo, Wenya & Bai, Zhidong & Zheng, Shurong & Hui, Yongchang, 2020. "A modified BDS test," Statistics & Probability Letters, Elsevier, vol. 164(C).
    4. Lubos Briatka, 2006. "How Big is Big Enough? Justifying Results of the iid Test Based on the Correlation Integral in the Non-Normal World," CERGE-EI Working Papers wp308, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Alagidede, Paul & Lange, Ian, 2009. "Variability in coal prices: evidence from the U.S," Stirling Economics Discussion Papers 2009-01, University of Stirling, Division of Economics.
    6. Wali, Muammer & Chan, Felix & Manzur, Meher, 2017. "Nonlinear dependence in exchange rate returns: How do emerging Asian currencies compare with major currencies?," Journal of Asian Economics, Elsevier, vol. 50(C), pages 62-72.

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    More about this item

    Keywords

    chaos; nonlinear dynamics; correlation integral; Monte Carlo; single-blind competition; power tests; high-frequency economic and financial data;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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