Size properties of cointegration tests in misspecified systems

Pär Österholm

Applied Economics Letters, 2004, vol. 11, issue 15, 919-924

Abstract: The small sample size properties of three frequently used cointegration tests when a system has been misspecified are investigated. Specifically, the misspecification consists of one relevant variable being omitted from a system with one cointegrating vector. A Monte Carlo study shows that the Johansen (1991) trace test, adjusted by a simple finite sample correction, has the most robust behaviour when lag length in the test equations is chosen according to traditional information criteria.

Date: 2004
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DOI: 10.1080/1350485042000282286

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