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Using Bootstrap Method to Evaluate the Power of Tests for Non-Linearity in Asymmetric Price Relationship

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  • Henry De-Graft Acquah

Abstract

This paper introduces and applies the bootstrap method to compare the power of the test for asymmetry in the Granger and Lee (1989) and Von Cramon-Taubadel and Loy (1996) models. The results of the bootstrap simulations indicate that the power of the test for asymmetry depends on various conditions such as the bootstrap sample size, model complexity, difference in adjustment speeds and the amount of noise in the data generating process used in the application. The true model achieves greater power when compared with the complex model. With small bootstrap sample size or large noise, both models display low power in rejecting the (false) null hypothesis of symmetry.

Suggested Citation

  • Henry De-Graft Acquah, 2013. "Using Bootstrap Method to Evaluate the Power of Tests for Non-Linearity in Asymmetric Price Relationship," Journal of Economics and Behavioral Studies, AMH International, vol. 5(4), pages 237-241.
    • Handle: RePEc:rnd:arjebs:v:5:y:2013:i:4:p:237-241
    DOI: 10.22610/jebs.v5i4.399
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    1. Cook, Steven & Holly, Sean & Turner, Paul, 1999. "The power of tests for non-linearity: the case of Granger-Lee asymmetry," Economics Letters, Elsevier, vol. 62(2), pages 155-159, February.
    2. Granger, C W J & Lee, T H, 1989. "Investigation of Production, Sales and Inventory Relationships Using Multicointegration and Non-symmetric Error Correction Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 145-159, Supplemen.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. James P. Houck, 1977. "An Approach to Specifying and Estimating Nonreversible Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(3), pages 570-572.
    5. Stephan Cramon-Taubadel & Jens-Peter Loy, 1996. "Price Asymmetry in the International Wheat Market: Comment," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 44(3), pages 311-317, November.
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