Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86631
Authors: 
Boswijk, H. Peter
Klaassen, Franc
Year of Publication: 
2005
Series/Report no.: 
Tinbergen Institute Discussion Paper 04-119/4
Abstract: 
It is generally believed that for the power of unit root tests, only the time span and not the observation frequency matters. In this paper we show that the observation frequency does matter when the high-frequency data display fat tails and volatility clustering, as is typically the case for financial time series such as exchange rate returns. Our claim builds on recent work on unit root and cointegration testing based non-Gaussian likelihood functions. The essential idea is that such methods will yield power gains in the presence of fat tails and persistent volatility clustering, and the strength of these features (and hence the power gains) increases with the observation frequency. This is illustrated using both Monte Carlo simulations and empirical applications to real exchange rates.
Subjects: 
Fat tails
GARCH
mean reversion
observation frequency
purchasing-power parity
unit roots
JEL: 
C12
C22
F31
Document Type: 
Working Paper

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