Testing of the mean reversion parameter in continuous time models

Emma Iglesias

Economics Letters, 2014, vol. 122, issue 2, 187-189

Abstract: In this paper we use the approximate bias expressions developed in Yu (2012) and Bao et al. (2013) to improve the testing of the ordinary least squares or quasi-maximum likelihood estimator of the mean reversion parameter in continuous time models. We follow the approach given in Iglesias and Phillips (2005) and Chambers (2013), where if we bias correct the estimated mean reversion parameter, we can improve on the small sample properties of the testing procedure. Simulation results confirm the usefulness of this approach using a t-statistic in this setting in the near unit root situation when the mean reversion parameter is approaching its lower bound. Therefore we always recommend bias correcting when applying a t-statistic in practice in this context.

Keywords: Least squares; Quasi-maximum likelihood; Continuous record; Estimation; Testing; Bias correction (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:122:y:2014:i:2:p:187-189

DOI: 10.1016/j.econlet.2013.11.022

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