The finite-sample performance of robust unit root tests |
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Authors: | Email author" target="_blank">Kai?CarstensenEmail author |
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Institution: | 1.Institute of Statistics and Econometrics,Christian Albrechts University,Kiel,Germany |
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Abstract: | This paper investigates the relative small sample performance of several robust unit root tests by means of a simulation study.
It is confirmed that the traditional least-squares based Dickey-Fuller test has substantially lower power than several robust
alternatives if the error distribution is fat-tailed while its power gain is small at the normal model. Particularly good
results are achieved by a quasi-maximum likelihood test. However, all robust tests under consideration exhibit severe size
distortions if the disturbances follow a skewed distribution. Moreover, under additive outliers, robust tests fail to produce
stable sizes and good power properties. Consequently, the value of using robust unit root tests depends heavily of the type
of nonnormality at hand. |
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Keywords: | Simulation study Nonnormality Power comparison |
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