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Tests for Cointegration with Structural Breaks Based on Subsamples

James Davidson () and Andrea Monticini

No 704, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper considers tests for cointegration with allowance for structural breaks, using the extrema of residual-based tests over subsamples of the data. One motivation for the approach is to formalize the practice of data snooping by practitioners, who may examine subsamples after failing to find a predicted cointegrating relationship. Valid critical values for such multiple testing situations may be useful. The methods also have the advantage of not imposing a form for the alternative hypothesis, in particular slope vs. intercept shifts and single versus multiple breaks, and being comparatively easy to compute. A range of alternative subsampling procedures, including sample splits, incremental and rolling samples are tabulated and compared experimentally. Shiller's annual stock prices and dividends series provide an illustration.

Keywords: Level shift; Regime shift; Cointegration; Brownian motion (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Date: 2007
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http://people.exeter.ac.uk/RePEc/dpapers/DP0704.pdf (application/pdf)

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Journal Article: Tests for cointegration with structural breaks based on subsamples (2010) Downloads
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