Department of Economics and Business Economics

A modified test against spurious long memory

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This paper considers the situation where a time series is composed of a fractionally integrated component with long memory parameter d is an element of (-1/2; 1/2) and some contamination in the form of level shifts or trends. The test against spurious long memory by Qu (2011) is consistent in this case as the standard local Whittle estimator for unknown d is upward biased. As demonstrated in this work, the power can be improved by removing the fractional component from the series prior to application of the test. This task can be accomplished by using the modified local Whittle approach by Hou and Perron (2014). This estimator is robust against contaminations and yields nearly unbiased point estimates of d, irrespective of whether contaminations are present or not. The suggested testing procedure has similar size properties as the original test and is often more powerful. (c) 2015 Elsevier B.V. All rights reserved.

Original languageEnglish
JournalEconomics Letters
Volume135
Pages (from-to)34-38
Number of pages5
ISSN0165-1765
DOIs
Publication statusPublished - 2015

    Research areas

  • Long memory, Structural breaks, Fractional differencing, LEVEL SHIFTS, RETURN INDEXES, VOLATILITY, TRUE

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