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

Copyright Owner and License

Authors

Included in

Econometrics Commons

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