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LM-type tests for idiosyncratic and common unit roots in the exact factor model with AR(1) dynamics

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  • Solberger, M.

    (Externe publicaties SBE)

  • Zhou, X.

    (Externe publicaties SBE)

Abstract

Recent developments within the panel unit-root literature have illustrated how the exact factor model serves as a parsimonious framework and allows for consistent maximum likelihood inference even when it is misspecified contra the more general approximate factor model. In this paper we consider an exact factor model with AR(1) dynamics and propose LM-type tests for idiosyncratic and common unit roots. We derive the asymptotic distributions and carry out simulations to investigate size and power of the tests in finite samples, as well as compare the performance with some existing tests.

Suggested Citation

  • Solberger, M. & Zhou, X., 2013. "LM-type tests for idiosyncratic and common unit roots in the exact factor model with AR(1) dynamics," Research Memorandum 059, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2013059
    DOI: 10.26481/umagsb.2013059
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    References listed on IDEAS

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