Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5095934 | Journal of Econometrics | 2015 | 35 Pages |
Abstract
Empirical evidence from time series methods which assume the usual I(0)/I(1) paradigm suggests that the efficient market hypothesis, stating that spot and futures prices of a commodity should co-integrate with a unit slope on futures prices, does not hold. However, these statistical methods are known to be unreliable if the data are fractionally integrated. Moreover, spot and futures price data tend to display clear patterns of time-varying volatility which also has the potential to invalidate the use of these methods. Using new tests constructed within a more general heteroskedastic fractionally integrated model we are able to find a body of evidence in support of the efficient market hypothesis for a number of commodities. Our new tests are wild bootstrap implementations of score-based tests for the order of integration of a fractionally integrated time series. These tests are designed to be robust to both conditional and unconditional heteroskedasticity of a quite general and unknown form in the shocks. We show that the asymptotic tests do not admit pivotal asymptotic null distributions in the presence of heteroskedasticity, but that the corresponding tests based on the wild bootstrap principle do. A Monte Carlo simulation study demonstrates that very significant improvements in finite sample behaviour can be obtained by the bootstrap vis-Ã -vis the corresponding asymptotic tests in both heteroskedastic and homoskedastic environments.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Giuseppe Cavaliere, Morten Ãrregaard Nielsen, A.M. Robert Taylor,