Unit Root Testing in the Presence of Mean Reverting Jumps: Evidence from US T-Bond Yields

2019 ◽  
Vol 20 (2) ◽  
pp. 145-152
Author(s):  
Deniz Ilalan ◽  
Özgür Özel
Keyword(s):  
Interest Rates ◽  
Unit Root ◽  
Unit Root Test ◽  
Mean Reversion ◽  
Point Of View ◽  
Bond Yields ◽  
Unit Root Testing ◽  
Augmented Dickey Fuller ◽  
Treasury Bond ◽  
Adf Test

AbstractMean reversion of financial data, especially interest rates is often tested by linear unit root tests. However, there are times where linear unit root test results can be misleading especially when mean reverting jump formations are at stage. Considering this framework, we provide a new unit root testing methodology and compute its asymptotic critical values via Monte Carlo simulation. Moreover, we numerically compare the power of this generalized mean reversion test with the pioneering linear unit root test in the literature namely the Augmented Dickey Fuller (ADF) test. We deduce that our test is a refinement of ADF test with a higher power. We apply our findings to US 10-year Treasury bond yields. We aim to shed light to the discussion among researchers whether interest rates can sometimes revert to a long-term constant mean or not from an unorthodox point of view.

scholarly journals UNIT ROOT TEST IN A THRESHOLD AUTOREGRESSION: ASYMPTOTIC THEORY AND RESIDUAL-BASED BLOCK BOOTSTRAP

2008 ◽  
Vol 24 (6) ◽  
pp. 1699-1716 ◽  
Author(s):  
Myung Hwan Seo
Keyword(s):  
Unit Root ◽  
Null Hypothesis ◽  
Unit Root Test ◽  
Block Bootstrap ◽  
Finite Sample ◽  
Threshold Autoregression ◽  
Augmented Dickey Fuller ◽  
Simplifying Assumptions ◽  
Adf Test ◽  
Threshold Process

This paper develops a test of the unit root null hypothesis against a stationary threshold process. This testing problem is nonstandard and complicated because a parameter is unidentified and the process is nonstationary under the null hypothesis. We derive an asymptotic distribution for the test, which is not pivotal without simplifying assumptions. A residual-based block bootstrap is proposed to calculate the asymptoticp-values. The asymptotic validity of the bootstrap is established, and a set of Monte Carlo simulations demonstrates its finite-sample performance. In particular, the test exhibits considerable power gains over the augmented Dickey–Fuller (ADF) test, which neglects threshold effects.

scholarly journals Automated Teller Machine and Performance of Deposit Money Banks in Nigeria

2021 ◽  
Vol 5 (23) ◽  
pp. 1-13
Author(s):  
Victor Inim Edet
Keyword(s):  
Central Bank ◽  
Unit Root ◽  
Unit Root Test ◽  
Test Analysis ◽  
Insignificant Effect ◽  
Ex Post ◽  
Automated Teller Machine ◽  
Augmented Dickey Fuller ◽  
And Performance ◽  
Adf Test

The study examines the effect of ATM on the performance of deposit money banks in Nigeria for the period of 7 years from 2012 to 2018. The study adopted ex-post research design. The population of the study is all the deposit money banks in Nigeria. The study collected data from the Central Bank of Nigeria statistical bulletin. The study adopted pre-test analysis of correlation and unit root test using Augmented Dickey- Fuller (ADF) test. After analysizing the unit root test, regression was used. The study found that there was a positive and insignificant effect of ATM on performance of deposit money banks in Nigeria. Other findings were that volume of transaction of ATM has positive and insignificant effect on the return on asset of deposit money banks in Nigeria while value of transaction of ATM also has positive and insignificant effect on return on asset of deposit money banks in Nigeria. The study recommended that ATM machines should be re-strategies by deposit money banks in Nigeria and they should careful increase the volume of transaction by ensuring that network is properly maintain. They should use ATM network that is very good to satisfy customers during weekends. They should provide more ATM and encourage customers to use ATM and try to reduce the problem of cash jam and lack of cash dispense.

scholarly journals THE IMPACT OF EXPORTS ON ECONOMIC GROWTH OF PAKISTAN AND INDIA

2019 ◽  
Vol 2 (02) ◽  
pp. 77-89
Author(s):  
Rasheed Khan
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Unit Root ◽  
Unit Root Test ◽  
Direct Foreign Investment ◽  
Ordinary Least Squares ◽  
Policy Makers ◽  
Augmented Dickey Fuller ◽  
The Impact ◽  
Adf Test

The aim of this study is to investigate the impact of exports on economic growth of Pakistan and India for the period of 1990 to 2016. The unit root test namely Augmented Dickey Fuller (ADF) test was used to identify stationarity in the data. The method of Fully Modified Ordinary Least Squares (FMOLS) was employed to estimate the coefficient of the variables. The FMOLS results exhibit that exports is having positive and significant impact on economic growth in both countries. Moreover, the empirical results reveal that Foreign Direct Investment (FDI) inflow and human capital have also positive and significant effect on the economic growth. The findings of this study suggest that policy makers need to make effective policies in order to increase the volume of exports as well as attract direct foreign investment and encourage human capital in order to stimulate economic growth.

scholarly journals High Persistence and Nonlinear Behavior in Financial Variables: A More Powerful Unit Root Testing in the ESTAR Framework

Mathematics ◽  
2021 ◽  
Vol 9 (20) ◽  
pp. 2534
Author(s):  
Tolga Omay ◽  
Aysegul Corakci ◽  
Esra Hasdemir
Keyword(s):  
Interest Rates ◽  
Unit Root ◽  
Nuisance Parameter ◽  
Unit Root Test ◽  
Information Loss ◽  
Smooth Transition ◽  
Unit Root Testing ◽  
Fourier Function ◽  
Near Unit Root ◽  
Model Linearization

In this study, we consider the hybrid nonlinear features of the Exponential Smooth Transition Autoregressive-Fractional Fourier Function (ESTAR-FFF) form unit root test. As is well known, when developing a unit root test for the ESTAR model, linearization is performed by the Taylor approximation, and thereby the nuisance parameter problem is eliminated. Although this linearization process leads to a certain amount of information loss in the unit root testing equation, it also causes the resulting test to be more accessible and consistent. The method that we propose here contributes to the literature in three important ways. First, it reduces the information loss that arises due to the Taylor expansion. Second, the research to date has tended to misinterpret the Fourier function used with the Kapetanios, Shin and Snell (2003) (KSS) unit root test and considers it to capture multiple smooth transition structural breaks. The simulation studies that we carry out in this study clearly show that the Fourier function only restores the Taylor residuals of the ESTAR type function rather than accounting forthe smooth structural break. Third, the new nonlinear unit root test developed in this paper has very strong power in the highly persistent near unit root environment that the financial data exhibit. The application of the Kapetanios Shin Snell- Fractional Fourier (KSS-FF) test to ex-post real interest rates data of 11 OECD countries for country-specific sample periods shows that the new test catches nonlinear stationarity in many more countries than the KSS test itself.

scholarly journals THE WEAK FORM MARKET EFFICIENCY IN THE MSCI ETF INDICES: CONVENTIONAL AND THE FOURIER UNIT ROOT TEST ON THE DEVELOPED AND DEVELOPING COUNTRIES

2020 ◽  
Vol 8 (4) ◽  
pp. 409-423
Author(s):  
Sümeyra GAZEL
Keyword(s):  
Developing Countries ◽  
Unit Root ◽  
Structural Break ◽  
Unit Root Test ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Developed Countries ◽  
Exchange Traded Funds ◽  
Unit Root Testing ◽  
Daily Data

In this study, weak form efficiency of the Exchange Traded Funds (ETF) in the Morgan Stanley Capital International (MSCI) Index of developed and developing countries is tested. The Fourier Unit Root test, which does not lose its predictive power in terms of structural break date, number and form, is used on daily data. Also, conventional unit root tests are used for comparison between two different tests. Analysis results indicate common findings in some countries for both unit root testing. However, the Fourier unit root test results relatively more support the assumption of efficient market hypothesis that developed countries may be more efficient than developing countries.

Are regional house prices stationary in Iran? New evidence using Fourier quantile unit root test

2019 ◽  
Vol 12 (5) ◽  
pp. 849-864
Author(s):  
Arash Hadizadeh
Keyword(s):  
Interest Rates ◽  
Housing Market ◽  
Unit Root ◽  
House Prices ◽  
Housing Prices ◽  
Unit Root Test ◽  
Generalized Least Squares ◽  
Main Concern ◽  
Content Type ◽  
Positive Effects

Purpose In the Iranian economy, investing in the housing market has been very important and beneficial for investors and households, because of inflationary environment, low real interest rates, underdeveloped financial and tax systems and economic sanctions. Hence, prediction of house prices is the main concern of housing market agents in the economy. The purpose of this paper is to test the stationary properties of Iran's provinces to improve the prediction of future housing prices. Design/methodology/approach In this paper, the authors have tested the stationary properties of 20 Iran’s province centers over the period from 1993 to 2017 using a novel Fourier quantile unit root test and conventional ordinary/generalized least squares (O/GLS) linear unit root/stationary tests. Findings According to conventional O/GLS linear unit root/stationary tests, most of the house prices series exhibit random walk behavior, whereas by applying the Fourier quantile unit root test, the null hypothesis of unit root is rejected for 15 out of 20 series. Other results indicated that house prices of cities responded differently to positive and negative shocks. Originality/value Previous studies only addressed conventional OLS or GLS linear unit root or stationary tests, but novel Fourier quantile unit root test was not used. New results were obtained based on this unit root test, that, as a priori knowledge, will help benefiting from the positive effects, or avoiding being victimized by the negative effects.

scholarly journals The evaluation of output convergence in several Central and Eastern European countries

Ekonomika ◽  
2015 ◽  
Vol 94 (1) ◽  
pp. 42-51
Author(s):  
Simionescu M.
Keyword(s):  
Unit Root ◽  
Unit Root Test ◽  
Regression Coefficients ◽  
Small Data ◽  
Eastern European ◽  
The European Union ◽  
Data Set ◽  
Central Eastern Europe ◽  
Augmented Dickey Fuller ◽  
Eastern European Countries

The main objective of this study is to check the convergence in output for six countries from Central-Eastern Europe that are also members of the European Union. A slow convergence was obtained only for Greece during 2003–2012, for the rest of the countries (Bulgaria, Croatia, Hungary, Poland and Romania) the divergence being observed. The regression coefficients were estimated using bootstrap simulations in order to solve the problem of a small data set. However, the graphical representations suggested a convergence for Bulgaria and Romania, the assumption proved also by the application of the Augmented Dickey Fuller unit root test. There is no evidence of the convergence of each country towards Greece, this country having a specific evolution of its GDP with higher values than the rest of the countries.

scholarly journals Effect of Interest Rate on Stock Prices in Ghana

2021 ◽  
Vol 12 (1(S)) ◽  
pp. 1-7
Author(s):  
Peter Arhenful ◽  
Augustine Kwadwo Yeboah ◽  
Kofi Sarfo Adjei
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Stock Prices ◽  
Time Series Data ◽  
Stock Exchange ◽  
Ordinary Least Squares ◽  
Series Data ◽  
Augmented Dickey Fuller ◽  
Ghana Stock Exchange ◽  
Adf Test

The paper assesses the effect of interest rate on stock prices, with emphases on Ghana Stock Exchange; using monthly time series data from July 2007 to December 2019. The Augmented Dickey-Fuller (ADF) test was employed to establish the stationarity properties of the data or otherwise. Using the Ordinary Least Squares (OLS) estimation technique of Multiple Regression, the results (? = – 0.891, p < 0.05) revealed an indirect association between interest rates and stock prices in the Ghanaian context; which is consistent with the theoretical conclusion that an increase in interest rate results in a decrease in stock prices. Thus, in the light of this finding, it was recommended that policymakers should consider the stock market dynamics due to the significant relationship that exists between the two macroeconomic variables.

Sign in / Sign up

Export Citation Format

Share Document