• ISSN: 2148-2225 (online)

Ulaştırma ve Lojistik Kongreleri

alphanumeric journal

The Journal of Operations Research, Statistics, Econometrics and Management Information Systems

Comparison of Cointegration Tests for Near Integrated Time Series Data with Structural Break

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Esin Firuzan, Ph.D.

Berhan Çoban


Abstract

Sample size of data, presence of structural break, location and magnitude of potential break, and having with near integrated process might affect the performance of cointegration tests. Engle-Granger (EG) and Johansen Cointegration tests may have erroneous results since they do not take into account possible structural break unlike Gregory – Hansen (GH) cointegration test. In this study, it is argued that the suitable choice of cointegration tests is quite complex, since outcomes of these tests are very sensitive to specifying these properties. The performance of cointegration tests is compared to each other underlying properties. This study presents how standard residual based tests- Engle-Granger and Gregory-Hansen- for cointegration can be implemented if series is near integrated, that is close to a unit root process. For assessing the finite sample performance of these tests, a Monte-Carlo experiment showed that both cointegration tests have relatively better size and power properties depend on break point, break magnitude, sample size of time series and the hypothesized value of AR(1) parameter. To illustrate the findings of the paper, a financial data is analyzed. The practitioners should be careful about the hypothesized value of AR(1) parameter which represents dependency degree of the data. If the autoregressive parameters is very close to one and the break magnitude is high, any test is acceptable for moderate to large sample size. However, one might need very large sample size to have a good power and actual size of the test. Additionally, GH test becomes liberal test unlike EG test as the magnitude of structural break increases.

Keywords: Cointegration, Engle-Granger Cointegration Test, Gregory-Hansen Cointegration Test, Structural Break

Jel Classification: C15, C32, F65

Yapısal Kırılmalı İç Bağımlılığı Yüksek Zaman Serilerinde Eşbütünleşme Testlerinin Karşılaştırılması

Öz

Örneklem büyüklüğü, yapısal kırılmanın varlığı, potansiyel kırılmanın yeri ve büyüklüğü ve birim köke yakın prosese sahip olmak Eşbütünleşme testlerinin performanslarını etkileyebilir. Engle-Granger (EG) ve Johansen eşbütünleşme testleri, Gregory – Hansen (GH) eşbütünleşme testinden farklı olarak, olası kırılmaları dikkate almadığından hatalı sonuçlar verebilmektedir. Sözü geçen testlerin çıktıları bu özelliklerin yapısına çok duyarlı olduğundan, bu çalışmada uygun eşbütünleşme testinin seçilmesinin oldukça karmaşık olduğu tartışılmıştır. Eşbütünleşme testlerinin performansları belirtilen özellikler altında karşılaştırıldı. Bu çalışma, standart hata terimi tabanlı testlerin - Engle-Granger ve Gregory-Hansen- serilerin yüksek iç bağımlılığa (birim köke yakın süreçlere) sahip olduğunda nasıl uygulanabileceğini göstermektedir. Testlerin sonlu örneklem performansları değerlendirildiğinde, Monte Carlo deney sonuçları, her iki testin de kırılma noktası, kırılmanın büyüklüğü, serinin genişliği ve AR(1) parametresi değerleri için anlamlılık düzeyi ve güç değerleri açısından iyi sonuçlar verdiğini göstermiştir. Çalışmanın bulguları finansal veri ile de analiz edilmiştir. Araştırmacılar AR(1) modelin iç bağımlılığını gösteren parametrenin değerini test ederken dikkatli olmalıdırlar. Otoregresif modelin parametresinin bire çok yakın çıktığı ve yapısal kırılmanın büyüklüğünün yüksek olduğu durumda her iki test de büyük örneklem genişliği altında uygulanabilir. Ancak testlerin daha iyi güç değerlerine ve nominal anlamlılık düzeylerine sahip olması için çok büyük örneklemlere ihtiyaç vardır. Ek olarak yapısal kırılmanın büyüklüğü arttıkça Gregory – Hansen testi Engle Granger testine göre daha liberal davranışlar sergilemektedir.

Anahtar Kelimeler: Engle-Granger Eşbütünleşme Testi, Eşbütünleşme, Gregory-Hansen Eşbütünleşme Testi, Yapısal Kırılma

Suggested citation

Firuzan, E. & Çoban, B. (). Comparison of Cointegration Tests for Near Integrated Time Series Data with Structural Break. Alphanumeric Journal, 4(1), 35-44. http://dx.doi.org/10.17093/aj.2016.4.1.5000159943

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Volume 4, Issue 1, 2016

2016.04.01.ECON.01

alphanumeric journal

Volume 4, Issue 1, 2016

Pages 35-44

Received: Dec. 17, 2015

Accepted: Jan. 7, 2016

Published: June 30, 2016

Full Text [827.0 KB]

2016 Firuzan, E., Çoban, B.

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