On the Size Distortion from Linearly Interpolating Low-frequency Series for Cointegration Tests

Eric Ghysels and J. Miller

A chapter in Essays in Honor of Peter C. B. Phillips, 2014, vol. 14, pp 93-122 from Emerald Group Publishing Limited

Abstract: We analyze the sizes of standard cointegration tests applied to data subject to linear interpolation, discovering evidence of substantial size distortions induced by the interpolation. We propose modifications to these tests to effectively eliminate size distortions from such tests conducted on data interpolated from end-of-period sampled low-frequency series. Our results generally do not support linear interpolation when alternatives such as aggregation or mixed-frequency-modified tests are possible.

Keywords: Linear interpolation; cointegration; trace test; residual-based cointegration tests; C12; C32 (search for similar items in EconPapers)
Date: 2014
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Working Paper: On the Size Distortion from Linearly Interpolating Low-frequency Series for Cointegration Tests (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-905320140000033004

DOI: 10.1108/S0731-905320140000033004

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