{"title":"A residual-based nonparametric variance ratio no-cointegration test","authors":"Karsten Reichold","doi":"10.1111/jtsa.12734","DOIUrl":null,"url":null,"abstract":"<p>It is prominently stated in the literature that local asymptotic power properties serve as a useful indicator for the performance of residual-based no-cointegration tests in finite samples. However, this article comes to an opposing conclusion. In particular, we show that Breitung's (2002, Journal of Econometrics 108, 343–363) nonparameteric variance ratio unit root test applied to regression residuals serves as a no-cointegration test but is inferior to its competitors from a local asymptotic power perspective. Nevertheless, in finite samples, the variance ratio test has good size properties, competitive power, and the convenience of being tuning parameter free. In general, we find that short-run dynamics in the error process can have considerably larger detrimental effects on the performance of residual-based no-cointegration tests in finite samples than changes in the only nuisance parameter affecting local asymptotic power of the tests. The results serve as a warning for practitioners and lead to interesting directions for future research.</p>","PeriodicalId":1,"journal":{"name":"Accounts of Chemical Research","volume":null,"pages":null},"PeriodicalIF":16.4000,"publicationDate":"2024-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jtsa.12734","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Accounts of Chemical Research","FirstCategoryId":"100","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/jtsa.12734","RegionNum":1,"RegionCategory":"化学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"CHEMISTRY, MULTIDISCIPLINARY","Score":null,"Total":0}
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Abstract
It is prominently stated in the literature that local asymptotic power properties serve as a useful indicator for the performance of residual-based no-cointegration tests in finite samples. However, this article comes to an opposing conclusion. In particular, we show that Breitung's (2002, Journal of Econometrics 108, 343–363) nonparameteric variance ratio unit root test applied to regression residuals serves as a no-cointegration test but is inferior to its competitors from a local asymptotic power perspective. Nevertheless, in finite samples, the variance ratio test has good size properties, competitive power, and the convenience of being tuning parameter free. In general, we find that short-run dynamics in the error process can have considerably larger detrimental effects on the performance of residual-based no-cointegration tests in finite samples than changes in the only nuisance parameter affecting local asymptotic power of the tests. The results serve as a warning for practitioners and lead to interesting directions for future research.
期刊介绍：
Accounts of Chemical Research presents short, concise and critical articles offering easy-to-read overviews of basic research and applications in all areas of chemistry and biochemistry. These short reviews focus on research from the author’s own laboratory and are designed to teach the reader about a research project. In addition, Accounts of Chemical Research publishes commentaries that give an informed opinion on a current research problem. Special Issues online are devoted to a single topic of unusual activity and significance.
Accounts of Chemical Research replaces the traditional article abstract with an article "Conspectus." These entries synopsize the research affording the reader a closer look at the content and significance of an article. Through this provision of a more detailed description of the article contents, the Conspectus enhances the article's discoverability by search engines and the exposure for the research.
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