Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 188: Bootstrap Testing for Fractional Integration

Michael K. Andersson and Mikael P. Gredenhoff
Additional contact information
Michael K. Andersson: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Mikael P. Gredenhoff: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: Asymptotic tests for fractional integration, such as the Geweke-Porter-Hudak test, the modified rescaled range test and Lagrange multiplier type tests, exhibit size-distortions in small-samples. This paper investigates a parametric bootstrap testing procedure, for size-correction, by means of a computer simulation study. The bootstrap provides a practical method to eliminate size-distortions in the case of an asymptotic pivotal statistic while the power, in general,is close to the corresponding size-adjusted asymptotic test. The results are very encouraging and suggest that a bootstrap testing procedure does correct for size-distortions.

Keywords: Long-memory; ARFIMA; parametric resampling; small-sample; MonteCarlo simulation; size-correction

JEL-codes: C15; C22; C52

12 pages, August 29, 1997

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