Publication Type
Journal Article
Version
submittedVersion
Publication Date
1-2024
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 procedures in practical work.
Keywords
Explosiveness, HAR test, Long memory, S&P 500, Unit root test
Discipline
Econometrics | Finance
Research Areas
Econometrics
Publication
Journal of Econometrics
Volume
238
Issue
2
First Page
1
Last Page
25
ISSN
0304-4076
Identifier
10.1016/j.jeconom.2023.105626
Publisher
Elsevier: 24 months
Citation
LUI, Yui Lim; PHILLIPS, Peter C. B.; and Jun YU.
Robust testing for explosive behavior with strongly dependent errors. (2024). Journal of Econometrics. 238, (2), 1-25.
Available at: https://ink.library.smu.edu.sg/soe_research/2709
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.
Additional URL
https://doi.org/10.1016/j.jeconom.2023.105626