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On The Ranks Of Tests Having Null Of Cointegration: A Monte Carlo Comparison

Author

Listed:
  • Nicoleta ISAC

    (Istanbul Sabahattin Zaim University, Halkali Cad. No: 281 Halkali Küçükçekmece, Istanbul, Turkey)

  • Cosmin DOBRIN

    (Bucharest University of Economic Studies, Piata Romana 6, Bucharest, Romania)

  • Mehmood HUSSAN

    (International Islamic University Islamabad, New campus, Sector H-10, Islamabad, Pakistan.)

  • Asad ul Islam KHAN

    (Ibn Haldun University, Kayabasi Mahallesi Ulubatli Hasan Caddesi No:2 Basaksehir, Istanbul, Turkey)

  • Alina- Andreea MARIN

    (Bucharest University of Economic Studies, Piata Romana 6, Bucharest, Romania)

Abstract

The null of cointegration tests for testing the existence of cointegration are available in literature in great diversity. The selection of a particular test from all these available tests is the crucial problem and often researchers face this. This study is carried out to solve this problem by comparing eight tests on basis two properties of size and power using a new proposed methodology of rank scores. Three different specifications of deterministic component and four sample sizes are considered. It is concluded that if asymptotic critical values are used then it results into an uncontrolled empirical size. While, if the simulated critical values are used, then the empirical size is controlled around nominal size. Moreover, on basis of power, a simple test, which is based on KPSS statistic, is the sole better performer for all of the different 132 different cases of data generations considered in the study.

Suggested Citation

  • Nicoleta ISAC & Cosmin DOBRIN & Mehmood HUSSAN & Asad ul Islam KHAN & Alina- Andreea MARIN, 2020. "On The Ranks Of Tests Having Null Of Cointegration: A Monte Carlo Comparison," Management Research and Practice, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 12(2), pages 58-69, June.
    • Handle: RePEc:rom:mrpase:v:12:y:2020:i:2:p:58-69
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    References listed on IDEAS

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