A Residual-Based LM Test for Fractional Cointegration

Arbeitspapier

Nonstationary fractionally integrated time series may possibly be fractionally cointegrated. In this paper we propose a test for the null hypothesis of no cointegration. It builds on a static cointegration regression of the levels of the variables as a first step. In a second step, a univariate LM test is applied to the single equation regression residuals. However, it turns out that the application of the LM test to residuals without further modifications does not result in a limiting standard normal distribution, which contrasts with the situation when the LM test is applied to observed series. Therefore, we suggest a simple modification of the LM test that accounts for the residual effect. At the same time it corrects for eventual endogeneity of the cointegration regression. The proposed modification guarantees a limiting standard normal distribution of the test statistic. Our procedure is completely regression based and hence easy to perform. Monte Carlo experiments establish its validity for finite samples.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Darmstadt Discussion Papers in Economics ; No. 114

Classification and Topics

• Classification: Wirtschaft
• Subject: Long memory ; LM test ; single equations ; Kointegration ; Zeitreihenanalyse ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hassler, Uwe ; Breitung, Jörg
• Event: Veröffentlichung
• (who): Technische Universität Darmstadt, Department of Law and Economics
• (where): Darmstadt
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/84848
• Last update: 10.03.2025, 11:43 AM CET