On the performance of wavelet based unit root tests

In this paper, we apply the wavelet methods in the popular Augmented Dickey-Fuller and M types of unit root tests. Moreover, we provide an extensive comparison of the wavelet based unit root tests which also includes the recent contributions in the literature. Moreover, we derive the asymptotic prop...

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Bibliographic Details
Published in:Journal of risk and financial management 2018-09, Vol.11 (3), p.1-22
Main Authors: Eroğlu, Burak Alparslan, Soybilgen, Barış
Format: Article
Language:English
Subjects:
Approximation
Cointegration analysis
Decomposition
Dickey, David
Economic models
GLS detrending
Mathematical functions
Monte Carlo simulation
Time series
unit root testing
wavelet
Wavelet transforms
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Summary:In this paper, we apply the wavelet methods in the popular Augmented Dickey-Fuller and M types of unit root tests. Moreover, we provide an extensive comparison of the wavelet based unit root tests which also includes the recent contributions in the literature. Moreover, we derive the asymptotic properties of the wavelet based unit root tests under generalized least squares detrending mechanism. We demonstrate that the wavelet based M tests exhibit better size performance even in problematic cases such as the presence of negative moving average innovations. However, the power performances of the wavelet based unit root tests are quite similar to each other.
ISSN:1911-8074
1911-8066
1911-8074
DOI:10.3390/jrfm11030047