We consider the power properties of the CUSUM and CUSUM of squares tests in the presence of a one-time change in the parameters of a linear regression model. A result due to Ploberger and Krämer (1990) is that the CUSUM of squares test has only trivial asymptotic local power in this case, while...

When a k period future return is regressed on a current variable such as the log dividend yield, the marginal significance level of the t-test that the return is un- predictable typically increases over some range of future return horizons, k. Local asymptotic power analysis shows that the power...

This paper investigates the effects of consistent and inconsistent long-run variance estimation on a unit root test based on the generalization of the von Neumann ratio. The results from the Monte Carlo experiments suggest that the tests based on an inconsistent estimator have less size...

First-differencing is generally taken to imply the loss of one observation, the first, or at least that the effect of ignoring this observation is asymptotically negligible. However, this is not always true, as in the case of GLS detrending. In order to illustrate this, the current paper...

Very little is known about the local power of second generation panel unit root tests that are robust to cross-section dependence. This paper derives the local asymptotic power functions of the CADF and CIPS tests of Pesaran (A Simple Panel Unit Root Test in Presence of Cross-Section Dependence,...