Georgiev, I and Rodrigues, PMM and Taylor, AMR (2017) Unit Root Tests and Heavy-Tailed Innovations. UNSPECIFIED. Essex Finance Centre Working Papers.
Georgiev, I and Rodrigues, PMM and Taylor, AMR (2017) Unit Root Tests and Heavy-Tailed Innovations. UNSPECIFIED. Essex Finance Centre Working Papers.
Georgiev, I and Rodrigues, PMM and Taylor, AMR (2017) Unit Root Tests and Heavy-Tailed Innovations. UNSPECIFIED. Essex Finance Centre Working Papers.
Abstract
We evaluate the impact of heavy-tailed innovations on some popular unit root tests. In the context of a near-integrated series driven by linear-process shocks, we demonstrate that their limiting distributions are altered under in nite variance vis-�-vis finite variance. Reassuringly, however, simulation results suggest that the impact of heavy-tailed innovations on these tests are relatively small. We use the framework of Amsler and Schmidt (2012) whereby the innovations have local-to- nite variances being generated as a linear combination of draws from a thin- tailed distribution (in the domain of attraction of the Gaussian distribution) and a heavy-tailed distribution (in the normal domain of attraction of a stable law). We also explore the properties of ADF tests which employ Eicker-White standard errors, demonstrating that these can yield significant power improvements over conventional tests.
Item Type: | Monograph (UNSPECIFIED) |
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Uncontrolled Keywords: | Infinite variance; ?-stable distribution; Eicker-White standard errors; symptotic local power functions; weak dependence |
Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 18 Jan 2017 11:12 |
Last Modified: | 16 May 2024 18:55 |
URI: | http://repository.essex.ac.uk/id/eprint/18832 |
Available files
Filename: 16_r_paper.pdf