Scandinavian Working Papers in Economics

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

No 218: Robust Testing for Fractional Integration Using the Bootstrap

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 are usually badly sized in small samples, even for normally distributed processes. Furthermore, tests that are well-sized under normality may be severely distorted by non-normalities and ARCH errors. This paper demonstrates how the bootstrap can be implemented to correct for such size distortions. It is shown that a well-designed bootstrap test based on the MRR and GPH tests is exact, and a procedure based on the REG test is nearly exact.

Keywords: Long-memory; resampling; skewness and kurtosis; ARCH; Monte Carlo; size correction.

JEL-codes: C12; C15; C22; C52

19 pages, January 27, 1998

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