The Effect of Time-Series and Cross-Sectional Heterogeneity on Panel Unit Root Test Power

Posted: 18 May 2001

See all articles by Timothy E. Jares

Timothy E. Jares

University of Northern Colorado - Kenneth W. Montfort College of Business - Department of Finance

John M. Geppert

University of Nebraska at Lincoln - Department of Finance

Angeline M. Lavin

University of South Dakota - School of Business

Abstract

Panel unit root tests represent a significant advancement in addressing the low power of unit root tests by exploiting cross-sectional and time-series information. In this article we employ Monte Carlo techniques to quantify the power improvements due to cross-sectional information and assess test sensitivity to heterogeneous data. Pooling the data alleviates negative effects of slowly adjusting equilibrium relations as well as persistence in the forcing variable. However, if the panel contains a mixture of unit root and stationary series, the power of the test decreases substantially and the interpretation of the results becomes tenuous.

JEL Classification: C230, C250

Suggested Citation

Jares, Timothy E. and Geppert, John M. and Lavin, Angeline M., The Effect of Time-Series and Cross-Sectional Heterogeneity on Panel Unit Root Test Power. Available at SSRN: https://ssrn.com/abstract=267771

Timothy E. Jares (Contact Author)

University of Northern Colorado - Kenneth W. Montfort College of Business - Department of Finance ( email )

Kepner Hall
800 17th Street
Greeley, CO 80639
United States
970-351-2275 (Phone)

John M. Geppert

University of Nebraska at Lincoln - Department of Finance ( email )

229 CBA
Lincoln, NE 68588-0490
United States
(402) 472-3370 (Phone)

Angeline M. Lavin

University of South Dakota - School of Business ( email )

414 East Clark Street
Vermillion, SD 57069
United States
605-677-5566 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
565
PlumX Metrics