When Are Variance Ratio Tests for Serial Dependence Optimal?

Jon Faust ()

Econometrica, 1992, vol. 60, issue 5, 1215-26

Abstract: This paper considers a class of statistics that can be written as the ratio of the sample variance of a filtered time series to the sample variance of the original series. Any such statistic is shown to be optimal under normality for testing a null of white noise against some class of serially dependent alternatives. A simple characterization of the alternative class is provided. The results are used to show that a variance ratio test for mean reversion is an optimal test and to illustrate the forms of mean reversion it is best at detecting. Copyright 1992 by The Econometric Society.

Date: 1992
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