A Residual-Based LM Test for Fractional Cointegration

Uwe Hassler and Jörg Breitung ()

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: Nonstationary fractionally integrated time series may possibly be fractionally cointegrated. In this paper we propose a test for the null hypothesis of no cointegration. It builds on a static cointegration regression of the levels of the variables as a first step. In a second step, a univariate LM test is applied to the single equation regression residuals. However, it turns out that the application of the LM test to residuals without further modifications does not result in a limiting standard normal distribution, which contrasts with the situation when the LM test is applied to observed series. Therefore, we suggest a simple modification of the LM test that accounts for the residual effect. At the same time it corrects for eventual endogeneity of the cointegration regression. The proposed modification guarantees a limiting standard normal distribution of the test statistic. Our procedure is completely regression based and hence easy to perform. Monte Carlo experiments establish its validity for finite samples.

Date: 2009
Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/77555/
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in Darmstadt Discussion Papers in Economics . 114 (2009)

Downloads: (external link)
http://tuprints.ulb.tu-darmstadt.de/4813

Related works:
Working Paper: A Residual-Based LM Test for Fractional Cointegration (2002)
Working Paper: A Residual-Based LM Test for Fractional Cointegration (2002)
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:dar:wpaper:77555

Access Statistics for this paper

More papers in Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Contact information at EDIRC.
Bibliographic data for series maintained by Dekanatssekretariat ().