Exact Non-Parametric Tests for a Random Walk with Unknown Drift under Conditional Heteroscedasticity

Richard Luger

Staff Working Papers from Bank of Canada

Abstract: This paper proposes a class of linear signed rank statistics to test for a random walk with unknown drift in the presence of arbitrary forms of conditional heteroscedasticity. The class considered includes analogues of the well-known sign and Wilcoxon test statistics. The exactness of the proposed tests rests only on the assumption that the errors are symmetrically distributed. No other assumptions, such as normality or even the existence of moments, are required. Simulations confirm the reliability of the proposed tests, and their power is superior to that of the parametric variance-ratio test. The inference methods developed are illustrated by a test of the random walk hypothesis in exchange rates for five major currencies against the U.S. dollar.

Keywords: Econometric; and; statistical; methods (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2001
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
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Journal Article: Exact non-parametric tests for a random walk with unknown drift under conditional heteroscedasticity (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:01-2

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