Template-Type: ReDIF-Paper 1.0
Author-Name:  Ai Deng
 Author-X-Name-First: Ai
Author-X-Name-Last:  Deng
Author-Email: dengai@bu.edu
Author-Workplace-Name: Department of Economics, Boston University


Title: Local Power of Andrews and Ploberger Tests
Against Nearly Integrated, Nearly White
Noise Process

Abstract:We find that the Andrews and Ploberger’s (1996) tests have unit local power against
the nearly integrated, nearly white noise process (ref. Nabeya and Perron (1994)).
Therefore, compared with the stationary local alternatives, higher power is expected
when testing against such process. Monte Carlo simulation confirms our results. We
apply the tests to monthly SP500 stock returns and strongly reject the martingale
difference hypothesis.

Length:  08 pages
Creation-Date: 2006-05
Revision-Date: 
Publication-Status:
File-URL: http://www.bu.edu/econ/workingpapers/papers/AP_ninw.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2006-027
Classification-JEL:  c12
Keywords:  ARMA(1, 1), local power, Nearly integrated, nearly white noise process,
stock returns
Handle: RePEc:bos:wpaper:WP2006-027