Specification sensitivity in right-tailed unit root testing for explosive behaviour

Peter C B Phillips, Shuping Shi, Jun Yu

Research output: Contribution to journalArticlepeer-review

65 Citations (Scopus)

Abstract

This article aims to provide some empirical guidelines for the practical implementation of right-tailed unit root tests, focusing on the recursive right-tailed ADF test of Phillips et al. (2011b). We analyze and compare the limit theory of the recursive test under different hypotheses and model specifications. The size and power properties of the test under various scenarios are examined and some recommendations for empirical practice are given. Some new results on the consistent estimation of localizing drift exponents are obtained, which are useful in assessing model specification. Empirical applications to stock markets illustrate these specification issues and reveal their practical importance in testing.

Original languageEnglish
Pages (from-to)315-333
Number of pages19
JournalOxford Bulletin of Economics and Statistics
Volume76
Issue number3
DOIs
Publication statusPublished - Jun 2014
Externally publishedYes

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