A Class of Simple Distribution-Free Rank-Based Unit Root Tests

CentER Discussion Paper Series No. 2010-72 (revision of 2009-02)

26 Pages Posted: 30 Jul 2010

See all articles by Marc Hallin

Marc Hallin

ECARES, Universite Libre de Bruxelles

Ramon Van den Akker

Tilburg University - CentER and department of Econometrics & OR

Bas J. M. Werker

Tilburg University - Center for Economic Research (CentER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 30, 2010

Abstract

We propose a class of distribution-free rank-based tests for the null hypothesis of a unit root. This class is indexed by the choice of a reference density g, which needs not coincide with the unknown actual innovation density f. The validity of these tests, in terms of exact finite sample size, is guaranteed, irrespective of the actual underlying density, by distribution-freeness. Those tests are locally and asymptotically optimal under a particular asymptotic scheme, for which we provide a complete analysis of asymptotic relative efficiencies. Rather than asymptotic optimality, however, we emphasize finite-sample performances, and show that our rank-based tests perform significantly better than the traditional Dickey-Fuller tests.

Keywords: Unit root, Dickey-Fuller test, Local Asymptotic Normality, Rank test

JEL Classification: C12, C22

Suggested Citation

Hallin, Marc and Van den Akker, Ramon and Werker, Bas J.M., A Class of Simple Distribution-Free Rank-Based Unit Root Tests (June 30, 2010). CentER Discussion Paper Series No. 2010-72 (revision of 2009-02), Available at SSRN: https://ssrn.com/abstract=1649983 or http://dx.doi.org/10.2139/ssrn.1649983

Marc Hallin (Contact Author)

ECARES, Universite Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
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Ramon Van den Akker

Tilburg University - CentER and department of Econometrics & OR ( email )

K-623
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HOME PAGE: http://sites.google.com/site/rvdnakker/

Bas J.M. Werker

Tilburg University - Center for Economic Research (CentER) ( email )

Econometrics and Finance Group
5000 LE Tilburg
Netherlands

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