Size and power properties of powerful unit root tests in the presence of variance breaks

Steven Cook

Physica A: Statistical Mechanics and its Applications, 2003, vol. 317, issue 3, 432-448

Abstract: The standard Dickey–Fuller (DF) test is routinely employed to analyse the integrated nature of economic and financial time series. However, recent research has shown the test to suffer severe size distortion in the presence of breaks in innovation variance under the unit root null hypothesis. In this paper, the properties of alternative, more powerful unit root tests are examined in such circumstances. Simulation experiments are undertaken to permit a comparison of the behaviour of the alternative tests and a recently proposed ‘variance break robust’ unit root test. The results derived across a range of breakpoints and break sizes show a marked difference in the size and power properties of the rival tests. It is found that over a range of breaks and sample sizes, weighted symmetric or recursively mean-adjusted unit root tests are to be preferred to both the standard DF test and the robust test.

Keywords: Unit root tests; Size distortion; Weighted symmetric estimator; Recursive mean adjustment; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2003
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437102013444
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:317:y:2003:i:3:p:432-448

DOI: 10.1016/S0378-4371(02)01344-4

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().