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The finite-sample performance of robust unit root tests

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  • Kai Carstensen

Abstract

This paper investigates the relative small sample performance of several robust unit root tests by means of a simulation study. It is confirmed that the traditional least-squares based Dickey-Fuller test has substantially lower power than several robust alternatives if the error distribution is fat-tailed while its power gain is small at the normal model. Particularly good results are achieved by a quasi-maximum likelihood test. However, all robust tests under consideration exhibit severe size distortions if the disturbances follow a skewed distribution. Moreover, under additive outliers, robust tests fail to produce stable sizes and good power properties. Consequently, the value of using robust unit root tests depends heavily of the type of nonnormality at hand.
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  • Kai Carstensen, 2003. "The finite-sample performance of robust unit root tests," Statistical Papers, Springer, vol. 44(4), pages 469-482, October.
    • Handle: RePEc:spr:stpapr:v:44:y:2003:i:4:p:469-482
    DOI: 10.1007/BF02926005
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    Cited by:

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    3. Lisa Crosato & Luigi Grossi, 2019. "Correcting outliers in GARCH models: a weighted forward approach," Statistical Papers, Springer, vol. 60(6), pages 1939-1970, December.

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