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      Tests for cointegration with infinite variance errors

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      Author(s)
      Caner, M.
      Date
      1998
      Source Title
      Journal of Econometrics
      Print ISSN
      0304-4076
      Electronic ISSN
      1872-6895
      Publisher
      Elsevier BV
      Volume
      86
      Issue
      1
      Pages
      155 - 175
      Language
      English
      Type
      Article
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      Abstract
      This paper develops the asymptotic theory for residual-based tests and quasi-likelihood ratio tests for cointegration under the assumption of infinite variance errors. This article extends the results of Phillips and Ouliaris (1990) and Johansen (1988, 1991) which are derived under the assumption of square-integrable errors. Here the limit laws are expressed in terms of functionals of symmetric stable laws rather than Brownian motion. Critical values of the residual-based tests of Phillips and Ouliaris (1990) and likelihood-ratio-based tests of Johansen (1991) are calculated and tabulated. We also investigate whether these tests are robust to infinite variance errors. We found that regardless of the index of stability a, the residual-based tests are more robust to infinite variance errors than the likelihood-ratio-based tests. (C) 1998 Elsevier Science S.A. All rights reserved.
      Keywords
      Symmetric stable process
      Size distortion
      Quadratic variation
      Permalink
      http://hdl.handle.net/11693/10927
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/S0304-4076(97)00112-7
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