Two simple tests of the trend hypothesis under time-varying variance

- This paper investigates the effects of time-varying variance on two recent linear trend tests.
- We find time-varying variance results in obviously different null distributions.
- We propose two new linear trend tests which are robust to time-varying variance.
- Monte Carlo simulations and an empirical application are provided.

This paper investigates the effects of time-varying variance on the linear trend tests proposed by Harvey et al. (2007) (HLT) and Perron and Yabu (2009) (PY) and finds time-varying variance results in obviously different null distributions. We propose two new robust linear trend tests. An empirical application highlights the usefulness of our tests.