Journal or Book Title
Journal of Time Series Econometrics
First Page or Article ID Number
This study explores performance of the Johansen cointegration statistics on data containing negative moving average (NMA) errors. Monte Carlo experiments demonstrate that the asymptotic distributions of the statistics are sensitive to NMA parameters, and that using the standard 5% asymptotic critical values results in severe underestimation of the actual test sizes. We demonstrate that problems associated with NMA errors do not decrease as sample size increases; instead, they become more severe. Further we examine evidence that many U.S. commodity prices are characterized by NMA errors. Pretesting data is recommended before using standard asymptotic critical values for Johansen’s cointegration tests.
Mallory, Mindy and Lence, Sergio H., "Testing for Cointegration in the Presence of Moving Average Errors" (2012). Economics Publications. 39.