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Local Powers of Least-Squares-Based Test for Panel Fractional Ornstein-Uhlenbeck Process

Katsuto Tanaka (), Weilin Xiao () and Jun Yu ()
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Katsuto Tanaka: Gakushuin University
Weilin Xiao: Zhejiang University

No 6-2020, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: Based on the least squares estimator, this paper proposes a novel method to test the sign of the persistence parameter in a panel fractional Ornstein-Uhlenbeck process with a known Hurst parameter H. Depending on H ∈ (1/2, 1), H = 1/2, or H ∈ (0, 1/2), three test statistics are considered. In the null hypothesis the persistence parameter is zero. Based on a panel of continuous record of observations, the null asymptotic distributions are obtained when T is fixed and N is assumed to go to infinity, where T is the time span of the sample and N is the number of cross sections. The power function of the tests is obtained under the local alternative where the persistence parameter is close to zero in the order of 1/(T√N). The local power of the proposed test statistics is computed and compared with that of the maximum-likelihood-based test. The hypothesis testing problem and the local power function are also considered when a panel of discrete-sampled observations is available under a sequential limit.

Keywords: Panel fractional Ornstein-Uhlenbeck process; Least squares; Asymptotic distribution; Local alternative; Local power (search for similar items in EconPapers)
JEL-codes: C22 C23 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020-02-25
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ore and nep-sea
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