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A unit root model for trending time-series energy variables

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posted on 2015-01-01, 00:00 authored by Paresh Narayan, Ruipeng LiuRuipeng Liu
In this paper, we propose a GARCH-based unit root test that is flexible enough to account for; (a) trending variables, (b) two endogenous structural breaks, and (c) heteroskedastic data series. Our proposed model is applied to a range of time-series, trending, and heteroskedastic energy variables. Our two main findings are: first, the proposed trend-based GARCH unit root model outperforms a GARCH model without trend; and, second, allowing for a time trend and two endogenous structural breaks are important in practice, for doing so allows us to reject the unit root null hypothesis.

History

Series

School Working Paper - Financial Econometrics Series ; SWP 2015/05

Pagination

1 - 33

Publisher

Deakin University, School of Accounting, Economics and Finance

Place of publication

Geelong, Vic.

Language

eng

Notes

School working paper (Deakin University. School of Accounting, Economics and Finance) ; 2015/05 In this paper, we propose a GARCH-based unit root test that is flexible enough to account for; (a) trending variables, (b) two endogenous structural breaks, and (c) heteroskedastic data series. Our proposed model is applied to a range of time-series, trending, and heteroskedastic energy variables. Our two main findings are: first, the proposed trend-based GARCH unit root model outperforms a GARCH model without trend; and, second, allowing for a time trend and two endogenous structural breaks are important in practice, for doing so allows us to reject the unit root null hypothesis.

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CN.1 Other journal article

Copyright notice

2015, The Authors

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