Bootstrap and Fast Double Bootstrap Tests of Cointegration Rank with Financial Time Series
Contribuinte(s) |
Svenska handelshögskolan, institutionen för finansiell ekonomi och ekonomisk statistik, statistik Hanken School of Economics, Department of Finance and Statistics, Statistics |
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Data(s) |
11/09/2006
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Resumo |
The likelihood ratio test of cointegration rank is the most widely used test for cointegration. Many studies have shown that its finite sample distribution is not well approximated by the limiting distribution. The article introduces and evaluates by Monte Carlo simulation experiments bootstrap and fast double bootstrap (FDB) algorithms for the likelihood ratio test. It finds that the performance of the bootstrap test is very good. The more sophisticated FDB produces a further improvement in cases where the performance of the asymptotic test is very unsatisfactory and the ordinary bootstrap does not work as well as it might. Furthermore, the Monte Carlo simulations provide a number of guidelines on when the bootstrap and FDB tests can be expected to work well. Finally, the tests are applied to US interest rates and international stock prices series. It is found that the asymptotic test tends to overestimate the cointegration rank, while the bootstrap and FDB tests choose the correct cointegration rank. |
Formato |
411035 bytes application/pdf |
Identificador |
http://hdl.handle.net/10227/69 URN:ISBN:951-555-925-1 951-555-925-1 0357-4598 |
Idioma(s) |
en |
Publicador |
Svenska handelshögskolan Hanken School of Economics |
Relação |
Working Papers 519 |
Direitos |
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Palavras-Chave | #bootstrap #cointegration #financial time series #likelihood ratio test #Statistics #Finance |
Tipo |
Text |