Publication Type
Working Paper
Version
publishedVersion
Publication Date
10-2022
Abstract
A heteroskedasticity-autocorrelation robust (HAR) test statistic is proposed to test for the presence of explosive roots in financial or real asset prices when the equation errors are strongly dependent. Limit theory for the test statistic is developed and extended to heteroskedastic models. The new test has stable size properties unlike conventional test statistics that typically lead to size distortion and inconsistency in the presence of strongly dependent equation errors. The new procedure can be used to consistently time-stamp the origination and termination of an explosive episode under similar conditions of long memory errors. Simulations are conducted to assess the finite sample performance of the proposed test and estimators. An empirical application to the S&P 500 index highlights the usefulness of the proposed proceduresin practical work.
Keywords
HAR test, Long memory, Explosiveness, Unit root test, S&P 500
Discipline
Econometrics
Research Areas
Econometrics
First Page
1
Last Page
68
Publisher
SMU Economics and Statistics Working Paper Series, No. 11-2022
City or Country
Singapore
Citation
LUI, Yiu Lim; PHILLIPS, Peter C. B.; and YU, Jun.
Robust testing for explosive behavior with strongly dependent errors. (2022). 1-68.
Available at: https://ink.library.smu.edu.sg/soe_research/2631
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.