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Nonlinear dynamics in economics and finance and unit root testing

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Nonlinear dynamics in economics and finance and unit root testing. / Pavlidis, Efthymios; Paya, Ivan; Peel, David; Siriopoulos, Costas.

In: European Journal of Finance, Vol. 19, No. 6, 2013, p. 572-588.

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Pavlidis, Efthymios ; Paya, Ivan ; Peel, David ; Siriopoulos, Costas. / Nonlinear dynamics in economics and finance and unit root testing. In: European Journal of Finance. 2013 ; Vol. 19, No. 6. pp. 572-588.

Bibtex

@article{927a555081ad4d8a991e0a0d2f32a118,
title = "Nonlinear dynamics in economics and finance and unit root testing",
abstract = "This paper illustrates the flexibility of the ESTAR model to encompass a number of different characteristics found in economic and financial series, such as multiple equilibria, complex dynamics, chaotic-like behavior, and spurious trends. We then re-assess the power of the Kapetanios et al. (2003), Enders and Granger (1998), and Augmented Dickey Fuller unit root tests in the presence of nuisance parameters for parameter values typically encountered in the empirical literature. Our results show the lack of dominance of any particular test and that the power is not independent to priors about the nuisance parameters. Finally, we examine several asset price deviations from fundamentals and one hyper-inflation series and find contradictory results between the nonlinear fitted models and unit root tests. The findings highlight that new testing procedures with higher power are desirable.",
keywords = "asset prices, fundamentals , hyper-inflation , nonlinear dynamics , multiple equilibria , persistence",
author = "Efthymios Pavlidis and Ivan Paya and David Peel and Costas Siriopoulos",
year = "2013",
doi = "10.1080/1351847X.2011.607006",
language = "English",
volume = "19",
pages = "572--588",
journal = "European Journal of Finance",
issn = "1351-847X",
publisher = "Routledge",
number = "6",

}

RIS

TY - JOUR

T1 - Nonlinear dynamics in economics and finance and unit root testing

AU - Pavlidis, Efthymios

AU - Paya, Ivan

AU - Peel, David

AU - Siriopoulos, Costas

PY - 2013

Y1 - 2013

N2 - This paper illustrates the flexibility of the ESTAR model to encompass a number of different characteristics found in economic and financial series, such as multiple equilibria, complex dynamics, chaotic-like behavior, and spurious trends. We then re-assess the power of the Kapetanios et al. (2003), Enders and Granger (1998), and Augmented Dickey Fuller unit root tests in the presence of nuisance parameters for parameter values typically encountered in the empirical literature. Our results show the lack of dominance of any particular test and that the power is not independent to priors about the nuisance parameters. Finally, we examine several asset price deviations from fundamentals and one hyper-inflation series and find contradictory results between the nonlinear fitted models and unit root tests. The findings highlight that new testing procedures with higher power are desirable.

AB - This paper illustrates the flexibility of the ESTAR model to encompass a number of different characteristics found in economic and financial series, such as multiple equilibria, complex dynamics, chaotic-like behavior, and spurious trends. We then re-assess the power of the Kapetanios et al. (2003), Enders and Granger (1998), and Augmented Dickey Fuller unit root tests in the presence of nuisance parameters for parameter values typically encountered in the empirical literature. Our results show the lack of dominance of any particular test and that the power is not independent to priors about the nuisance parameters. Finally, we examine several asset price deviations from fundamentals and one hyper-inflation series and find contradictory results between the nonlinear fitted models and unit root tests. The findings highlight that new testing procedures with higher power are desirable.

KW - asset prices

KW - fundamentals

KW - hyper-inflation

KW - nonlinear dynamics

KW - multiple equilibria

KW - persistence

U2 - 10.1080/1351847X.2011.607006

DO - 10.1080/1351847X.2011.607006

M3 - Journal article

VL - 19

SP - 572

EP - 588

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 6

ER -