Alternative modeling strategies for specifying subset VAR models are considered. It is shown that under certain conditions a testing procedure based on t-ratios is equivalent to sequentially eliminating lags that lead to the largest improvement in a prespecified model selection criterion. A...

This paper tests the validity of Present Value (PV) models of stock prices by employing a two-step strategy for testing the null hypothesis of no cointegration against alternatives which are fractionally cointegrated. Monte Carlo simulations are conducted to evaluate the power and size...

Likelihood ratio (LR) tests for the cointegrating rank of a vector autoregressive (VAR) process have been developed under different assumptions regarding deterministic terms. For instance, nonzero mean terms and linear trends have been accounted for in some of the tests. In this paper we provide...

Testing the cointegrating rank of a vector autoregressive process which may have a deterministic linear trend is considered. Previous proposals for dealing with such a situation are either to allow for a deterministic trend term in computing a suitable test statistic or else remove the linear...

The impact of the choice of the lag length on tests for the number of cointegration relations in a vector autoregressive (VAR) process is investigated. It is shown that the asymptotic distribution of likelihood ratio (LR) tests for the cointegrating rank remains unchanged if the true data...

The small sample properties of two types of Chow tests are investigated in the context of multiple time series models. It is found that the tests may have substantially distorted size if the sample size is not large relative to the number of parameters in the model under study. In particular the...

The properties of a range of maximum eigenvalue and trace tests for the cointegrating rank of a vector autoregressive process are compared. The tests are alilikelihood ratio type tests and operate under different assumptions regarding the deterministic part of the data generation process. The...

We analyze daily changes of two log foreign exchange (FX) rates involving the Deutsche Mark (DEM) for the period 1975 - 1998, namely FX-rates measured against the US dollar (USD) and the Japanese yen (JPY). Ta account for volatility e1ustering we fit a GARCH(l,l)-model with leptokurtic...

In 2001, the Fed has lowered interest rates in a series of cuts, starting from 6.5 % at the end of 2000 to 2.0 % by early November. This paper asks, whether the Federal Reserve Bank has been surprising the markets, taking as given the conventional view about the effect of monetary policy shocks....

Multivariate Volatility Models belong to the class of nonlinear models for financial data. Here we want to focus on multivariate GARCH models. These models assume that the variance of the innovation distribution follows a time dependent process conditional on information which is generated by...