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Testing for no-cointegration under time-varying variance

Author

Listed:
  • Wang, Shaoping
  • Zhao, Qing
  • Li, Yanglin

Abstract

In this paper, we extend the residual-based Dickey–Fuller (DF) and Zt cointegration tests to allow for time-varying variance and obtain their asymptotic null distributions under this circumstance. To deal with time-varying variance, we develop two corresponding tests by wild bootstrap algorithm. The bootstrap-based tests achieve asymptotic validity in the presence of time-varying volatility. Simulations show that the bootstrap tests perform well in finite samples. Applying our proposed method to the Bitcoin and the Chinese stock market, we find evidence that the Bitcoin market is isolated from the Chinese stock market.

Suggested Citation

  • Wang, Shaoping & Zhao, Qing & Li, Yanglin, 2019. "Testing for no-cointegration under time-varying variance," Economics Letters, Elsevier, vol. 182(C), pages 45-49.
    • Handle: RePEc:eee:ecolet:v:182:y:2019:i:c:p:45-49
    DOI: 10.1016/j.econlet.2019.06.001
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    Citations

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    Cited by:

    1. Hirukawa, Junichi & Raïssi, Hamdi, 2020. "Testing linear relationships between non-constant variances of economic variables," Economic Modelling, Elsevier, vol. 90(C), pages 182-189.
    2. Hamdi Raissi, 2022. "On the dependence structure of the trade/no trade sequence of illiquid assets," Papers 2203.08223, arXiv.org.

    More about this item

    Keywords

    Cointegration; Wild bootstrap; Residual-based tests; Time-varying variance; Bitcoin;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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