Recursive adjusted unit root tests under non-stationary volatility

Shaoping Wang, Yanglin Li and Kuangyu Wen

Economics Letters, 2021, vol. 205, issue C

Abstract: This study concerns the effect of non-stationary volatility on unit root tests with a structural break in which the deterministic component is recursively adjusted. We derive the asymptotic distributions of our proposed test statistics. Simulations show the new test has good finite sample performances under non-stationary volatility. Applying to the China and US stock markets during the 2018 Sino-US trade conflict, we find that both stock indexes are unit root processes with a structural break in intercept and trend. This corresponds to the day when the US and China agree on a 90-day halt to new tariffs.

Keywords: Sino-US trade conflict; Recursive adjustment; Non-stationary volatility; Unit root tests; Structural break (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:205:y:2021:i:c:s0165176521002184

DOI: 10.1016/j.econlet.2021.109941

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