On the Power and Size Properties of Cointegration Tests in the Light of High-Frequency Stylized FactsReport as inadecuate


On the Power and Size Properties of Cointegration Tests in the Light of High-Frequency Stylized Facts


On the Power and Size Properties of Cointegration Tests in the Light of High-Frequency Stylized Facts - Download this document for free, or read online. Document in PDF available to download.

University of Erlangen-Nürnberg, Lange Gasse 20, 90403 Nürnberg, Germany





*

Author to whom correspondence should be addressed.



Academic Editor: Teodosio Perez-Amaral

Abstract This paper establishes a selection of stylized facts for high-frequency cointegrated processes, based on one-minute-binned transaction data. A methodology is introduced to simulate cointegrated stock pairs, following none, some or all of these stylized facts. AR1-GARCH1,1 and MR3-STAR1-GARCH1,1 processes contaminated with reversible and non-reversible jumps are used to model the cointegration relationship. In a Monte Carlo simulation, the power and size properties of ten cointegration tests are assessed. We find that in high-frequency settings typical for stock price data, power is still acceptable, with the exception of strong or very frequent non-reversible jumps. Phillips–Perron and PGFF tests perform best. View Full-Text

Keywords: cointegration testing; high-frequency; stylized facts; conditional heteroskedasticity; smooth transition autoregressive models cointegration testing; high-frequency; stylized facts; conditional heteroskedasticity; smooth transition autoregressive models





Author: Christopher Krauss * and Klaus Herrmann

Source: http://mdpi.com/



DOWNLOAD PDF




Related documents