Publication Type

Working Paper

Version

publishedVersion

Publication Date

2-2020

Abstract

Based on the least squares estimator, this paper proposes a novel method to test the sign of the persistence parameter in a panel fractional Ornstein-Uhlenbeck process with a known Hurst parameter H. Depending on H ∈ (1/2, 1), H = 1/2, or H ∈ (0, 1/2), three test statistics are considered. In the null hypothesis the persistence parameter is zero. Based on a panel of continuous record of observations, the null asymptotic distributions are obtained when T is fixed and N is assumed to go to infinity, where T is the time span of the sample and N is the number of cross sections. The power function of the tests is obtained under the local alternative where the persistence parameter is close to zero in the order of 1/(T√N). The local power of the proposed test statistics is computed and compared with that of the maximum-likelihood-based test. The hypothesis testing problem and the local power function are also considered when a panel of discrete-sampled observations is available under a sequential limit.

Keywords

Panel fractional Ornstein-Uhlenbeck process, Least squares, Asymptotic distribution, Local alternative, Local power

Discipline

Econometrics

Research Areas

Econometrics

First Page

1

Last Page

28

Publisher

SMU Economics and Statistics Working Paper Series, Paper No. 6-2020

City or Country

Singapore

Copyright Owner and License

Authors

Included in

Econometrics Commons

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