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http://hdl.handle.net/10419/22178
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| Title: | | The Variance Ratio Statistic at Large Horizons  |
| Authors: | | Deo, Rohit S. Chen, Willa W. |
| Issue Date: | | 2003 |
| Series/Report no.: | | Papers / Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE) 2004,04 |
| Abstract: | | We make three contributions to using the variance ratio statistic at large horizons. Allowing for general heteroscedasticity in the data, we obtain the asymptotic distribution of the statistic when the horizon k is increasing with the sample size n but at a slower rate so that k=n ! 0. The test is shown to be consistent against a variety of relevant mean reverting alternatives when k=n ! 0. This is in contrast to the case when k=n ! – > 0; where the statistic has been recently shown to be inconsistent against such alternatives. Secondly, we provide and justify a simple power transformation of the statistic which yields almost perfectly normally distributed statistics in finite samples, solving the well known right skewness problem. Thirdly, we provide a more powerful way of pooling information from different horizons to test for mean reverting alternatives. Monte Carlo simulations illustrate the theoretical improvements provided. |
| Subjects: | | Mean reversion Frequency domain Power transformation |
| JEL: | | C12 C22 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Papers, CASE - Center for Applied Statistics and Economics, HU Berlin
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