Non-parametric seasonal unit root tests under periodic non-stationary volatility

Kemal Çag̃lar Gög̃ebakan () and Burak Alparslan Eroglu ()
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Kemal Çag̃lar Gög̃ebakan: Oregon Health and Science University
Burak Alparslan Eroglu: İstanbul Bilgi University

Computational Statistics, 2022, vol. 37, issue 5, No 19, 2636 pages

Abstract: Abstract This paper presents a new non-parametric seasonal unit root testing framework that is robust to periodic non-stationary volatility in innovation variance by making an extension to the fractional seasonal variance ratio unit root tests of Eroğlu et al. (Econ Lett 167:75–80, 2018). The setup allows for both periodic heteroskedasticity structure of Burridge and Taylar (J Econ 104(1):91–117, 2001) and non-stationary volatility structure of Cavaliere and Taylor (Econ Theory 24(1):43-71, 2008). We show that the limiting null distributions of the variance ratio tests depend on nuisance parameters derived from the underlying volatility process. Monte Carlo simulations show that the standard variance ratio tests can be substantially oversized in the presence of such effects. Consequently, we propose wild bootstrap implementations of the variance ratio tests. Wild bootstrap resampling schemes are shown to deliver asymptotically pivotal inference. The simulation evidence depicts that the proposed bootstrap tests perform well in practice and essentially correct the size problems observed in the standard fractional seasonal variance ratio tests, even under extreme patterns of heteroskedasticity.

Keywords: Seasonal unit root; Non-stationary volatility; Variance ratio; Wild bootstrap (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00180-022-01211-w

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