Beyond Panel Unit Root Tests: Using Multiple Testing to Determine the Non Stationarity Properties of Individual Series in a Panel

Most panel unit root tests are designed to test the joint null hypothesis of a unit root for each individual series in a panel. After a rejection, it will often be of interest to identify which series can be deemed to be stationary and which series can be deemed nonstationary. Researchers will sometimes carry out this classification on the basis of n individual (univariate) unit root tests based on some ad hoc significance level. In this paper, we demonstrate how to use the false discovery rate (FDR) in evaluating I(1)=I(0) classifications based on individual unit root tests when the size of the cross section (n) and time series (T) dimensions are large. We report results from a simulation experiment and illustrate the methods on two data sets.

Testing for Stock Market Integration in a Developing Economy: Colombia

This paper examines the linkage between two parallel stock exchanges trading the same shares in Colombia, namely the Bogotá Stock Exchange and the Medellín Stock Exchange. We provide empirical evidence to support the hypothesis that these two markets can be best described as fully integrated over a period of almost four decades, which is consistent with the view that arbitrage opportunities are only possible in the short but not in the long run. In addition, we find evide

MEASUREMENT AND MODELING OF THE TOXICITY OF BINARY MIXTURES IN THE NEMATODE CAENORHABDITIS ELEGANS-A TEST OF INDEPENDENT ACTION

Ecological risk assessments must increasingly consider the effects of chemical mixtures on the environment as anthropogenic pollution continues to grow in complexity. Yet testing every possible mixture combination is impractical and unfeasible; thus, there is an urgent need for models that can accurately predict mixture toxicity from single-compound data. Currently, two models are frequently used to predict mixture toxicity from single-compound data: Concentration addition and independent action (IA). The accuracy of the predictions generated by these models is currently debated and needs to be resolved before their use in risk assessments can be fully justified. The present study addresses this issue by determining whether the IA model adequately described the toxicity of binary mixtures of five pesticides and other environmental contaminants (cadmium, chlorpyrifos, diuron, nickel, and prochloraz) each with dissimilar modes of action on the reproduction of the nematode Caenorhabditis elegans. In three out of 10 cases, the IA model failed to describe mixture toxicity adequately with significant or antagonism being observed. In a further three cases, there was an indication of synergy, antagonism, and effect-level-dependent deviations, respectively, but these were not statistically significant. The extent of the significant deviations that were found varied, but all were such that the predicted percentage effect seen on reproductive output would have been wrong by 18 to 35% (i.e., the effect concentration expected to cause a 50% effect led to an 85% effect). The presence of such a high number and variety of deviations has important implications for the use of existing mixture toxicity models for risk assessments, especially where all or part of the deviation is synergistic.

Bayesian sample size for exploratory clinical trials incorporating historical data

This paper presents a simple Bayesian approach to sample size determination in clinical trials. It is required that the trial should be large enough to ensure that the data collected will provide convincing evidence either that an experimental treatment is better than a control or that it fails to improve upon control by some clinically relevant difference. The method resembles standard frequentist formulations of the problem, and indeed in certain circumstances involving 'non-informative' prior information it leads to identical answers. In particular, unlike many Bayesian approaches to sample size determination, use is made of an alternative hypothesis that an experimental treatment is better than a control treatment by some specified magnitude. The approach is introduced in the context of testing whether a single stream of binary observations are consistent with a given success rate p(0). Next the case of comparing two independent streams of normally distributed responses is considered, first under the assumption that their common variance is known and then for unknown variance. Finally, the more general situation in which a large sample is to be collected and analysed according to the asymptotic properties of the score statistic is explored. Copyright (C) 2007 John Wiley & Sons, Ltd.

Testing for non-stationarity and cointegration allowing for the possibility of a structural break: an application to EuroSterling interest rates

In this paper we examine the order of integration of EuroSterling interest rates by employing techniques that can allow for a structural break under the null and/or alternative hypothesis of the unit-root tests. In light of these results, we investigate the cointegrating relationship implied by the single, linear expectations hypothesis of the term structure of interest rates employing two techniques, one of which allows for the possibility of a break in the mean of the cointegrating relationship. The aim of the paper is to investigate whether or not the interest rate series can be viewed as I(1) processes and furthermore, to consider whether there has been a structural break in the series. We also determine whether, if we allow for a break in the cointegration analysis, the results are consistent with those obtained when a break is not allowed for. The main results reported in this paper support the conjecture that the ‘short’ Euro-currency rates are characterised as I(1) series that exhibit a structural break on or near Black Wednesday, 16 September 1992, whereas the ‘long’ rates are I(1) series that do not support the presence of a structural break. The evidence from the cointegration analysis suggests that tests of the expectations hypothesis based on data sets that include the ERM crisis period, or a period that includes a structural break, might be problematic if the structural break is not explicitly taken into account in the testing framework.

Testing for a unit root in a process exhibiting a structural break in the presence of GARCH errors

This paper considers the effect of GARCH errors on the tests proposed byPerron (1997) for a unit root in the presence of a structural break. We assessthe impact of degeneracy and integratedness of the conditional varianceindividually and find that, apart from in the limit, the testing procedure isinsensitive to the degree of degeneracy but does exhibit an increasingover-sizing as the process becomes more integrated. When we consider the GARCHspecifications that we are likely to encounter in empirical research, we findthat the Perron tests are reasonably robust to the presence of GARCH and donot suffer from severe over-or under-rejection of a correct null hypothesis.

Testing for unit roots in bounded time series

Many key economic and financial series are bounded either by construction or through policy controls. Conventional unit root tests are potentially unreliable in the presence of bounds, since they tend to over-reject the null hypothesis of a unit root, even asymptotically. So far, very little work has been undertaken to develop unit root tests which can be applied to bounded time series. In this paper we address this gap in the literature by proposing unit root tests which are valid in the presence of bounds. We present new augmented Dickey–Fuller type tests as well as new versions of the modified ‘M’ tests developed by Ng and Perron [Ng, S., Perron, P., 2001. LAG length selection and the construction of unit root tests with good size and power. Econometrica 69, 1519–1554] and demonstrate how these tests, combined with a simulation-based method to retrieve the relevant critical values, make it possible to control size asymptotically. A Monte Carlo study suggests that the proposed tests perform well in finite samples. Moreover, the tests outperform the Phillips–Perron type tests originally proposed in Cavaliere [Cavaliere, G., 2005. Limited time series with a unit root. Econometric Theory 21, 907–945]. An illustrative application to U.S. interest rate data is provided

Sample size considerations in active-control non-inferiority trials with binary data based on the odds ratio

This paper presents an approximate closed form sample size formula for determining non-inferiority in active-control trials with binary data. We use the odds-ratio as the measure of the relative treatment effect, derive the sample size formula based on the score test and compare it with a second, well-known formula based on the Wald test. Both closed form formulae are compared with simulations based on the likelihood ratio test. Within the range of parameter values investigated, the score test closed form formula is reasonably accurate when non-inferiority margins are based on odds-ratios of about 0.5 or above and when the magnitude of the odds ratio under the alternative hypothesis lies between about 1 and 2.5. The accuracy generally decreases as the odds ratio under the alternative hypothesis moves upwards from 1. As the non-inferiority margin odds ratio decreases from 0.5, the score test closed form formula increasingly overestimates the sample size irrespective of the magnitude of the odds ratio under the alternative hypothesis. The Wald test closed form formula is also reasonably accurate in the cases where the score test closed form formula works well. Outside these scenarios, the Wald test closed form formula can either underestimate or overestimate the sample size, depending on the magnitude of the non-inferiority margin odds ratio and the odds ratio under the alternative hypothesis. Although neither approximation is accurate for all cases, both approaches lead to satisfactory sample size calculation for non-inferiority trials with binary data where the odds ratio is the parameter of interest.

The comparative field body temperature among Liolaemus lizards: Testing the static and the labile hypotheses

Two competing hypotheses have been suggested to explain thermal sensitivity of lizards to environmental conditions. These are the static and the labile hypotheses. The static hypothesis posits that thermal physiology is evolutionary conservative and consequently relatively insensitive to directional selection. Contrarily, the labile hypothesis states that thermal physiology does respond readily to directional selection in some lizard taxa. In this paper, we tested both hypotheses among species of Liolaemus lizards. The genus Liolaemus is diverse with about 200 species, being broadly distributed from central Peru to Tierra del Fuego at the southern end of South America. Data of field body temperature (T(b)) from Liolaemus species were collected from the literature. Based on the distributional range of the species we also collected data of mean annual ambient temperatures. We observed that both the traditional analysis and the phylogenetic approach indicate that in the genus Liolaemus T(b) of species varies in a manner that is consistent with ecological gradient of ambient temperature. The data suggest that the thermal physiology of Liolaemus lizards is evolutionarily flexible, and that this plasticity has been partially responsible for the colonization of a wide array of thermal environments. (C) 2009 Elsevier Ltd. All rights reserved.

Cutpoint selection for discretizing a continuous covariate for generalized estimating equations

We consider consider the problem of dichotomizing a continuous covariate when performing a regression analysis based on a generalized estimation approach. The problem involves estimation of the cutpoint for the covariate and testing the hypothesis that the binary covariate constructed from the continuous covariate has a significant impact on the outcome. Due to the multiple testing used to find the optimal cutpoint, we need to make an adjustment to the usual significance test to preserve the type-I error rates. We illustrate the techniques on one data set of patients given unrelated hematopoietic stem cell transplantation. Here the question is whether the CD34 cell dose given to patient affects the outcome of the transplant and what is the smallest cell dose which is needed for good outcomes. (C) 2010 Elsevier BM. All rights reserved.

Network genealogy of 195-bp satellite DNA supports the superimposed hybridization hypothesis of Trypanosoma cruzi evolutionary pattern

Trypanosoma cruzi is highly diverse genetically and has been partitioned into six discrete typing units (DTUs), recently re-named T. cruzi I-VI. Although T. cruzi reproduces predominantly by binary division, accumulating evidence indicates that particular DTUs are the result of hybridization events. Two major scenarios for the origin of the hybrid lineages have been proposed. It is accepted widely that the most heterozygous TcV and TcVI DTUs are the result of genetic exchange between TcII and TcIII strains. On the other hand, the participation of a TcI parental in the current genome structure of these hybrid strains is a matter of debate. Here, sequences of the T. cruzi-specific 195-bp satellite DNA of TcI, TcII, Tat, TcV, and TcVI strains have been used for inferring network genealogies. The resulting genealogy showed a high degree of reticulation, which is consistent with more than one event of hybridization between the Tc DTUs. The data also strongly suggest that Tat is a hybrid with two distinct sets of satellite sequences, and that genetic exchange between TcI and TcII parentals occurred within the pedigree of the TcV and TcVI DTUs. Although satellite DNAs belong to the fast-evolving portion of eukaryotic genomes, in >100 satellite units of nine T. cruzi strains we found regions that display 100% identity. No DTU-specific consensus motifs were identified, inferring species-wide conservation. (C) 2010 Elsevier B.V. All rights reserved.

Testing unit root based on partially adaptive estimation

This paper proposes unit tests based on partially adaptive estimation. The proposed tests provide an intermediate class of inference procedures that are more efficient than the traditional OLS-based methods and simpler than unit root tests based on fully adptive estimation using nonparametric methods. The limiting distribution of the proposed test is a combination of standard normal and the traditional Dickey-Fuller (DF) distribution, including the traditional ADF test as a special case when using Gaussian density. Taking into a account the well documented characteristic of heavy-tail behavior in economic and financial data, we consider unit root tests coupled with a class of partially adaptive M-estimators based on the student-t distributions, wich includes te normal distribution as a limiting case. Monte Carlo Experiments indicate that, in the presence of heavy tail distributions or innovations that are contaminated by outliers, the proposed test is more powerful than the traditional ADF test. We apply the proposed test to several macroeconomic time series that have heavy-tailed distributions. The unit root hypothesis is rejected in U.S. real GNP, supporting the literature of transitory shocks in output. However, evidence against unit roots is not found in real exchange rate and nominal interest rate even haevy-tail is taken into a account.

Testing covariance stationarity

In this paper, we show that the widely used stationarity tests such as the KPSS test have power close to size in the presence of time-varying unconditional variance. We propose a new test as a complement of the existing tests. Monte Carlo experiments show that the proposed test possesses the following characteristics: (i) In the presence of unit root or a structural change in the mean, the proposed test is as powerful as the KPSS and other tests; (ii) In the presence a changing variance, the traditional tests perform badly whereas the proposed test has high power comparing to the existing tests; (iii) The proposed test has the same size as traditional stationarity tests under the null hypothesis of stationarity. An application to daily observations of return on US Dollar/Euro exchange rate reveals the existence of instability in the unconditional variance when the entire sample is considered, but stability is found in subsamples.

Testing covariance stationarity

In this paper, we show that the widely used stationarity tests such as the KPSS test has power close to size in the presence of time-varying unconditional variance. We propose a new test as a complement of the existing tests. Monte Carlo experiments show that the proposed test possesses the following characteristics: (i) In the presence of unit root or a structural change in the mean, the proposed test is as powerful as the KPSS and other tests; (ii) In the presence a changing variance, the traditional tests perform badly whereas the proposed test has high power comparing to the existing tests; (iii) The proposed test has the same size as traditional stationarity tests under the null hypothesis of covariance stationarity. An application to daily observations of return on US Dollar/Euro exchange rate reveals the existence of instability in the unconditional variance when the entire sample is considered, but stability is found in sub-samples.

Irregular satellites of Jupiter: capture configurations of binary-asteroids

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)