Functional cointegration: definition and nonparametric estimation
Functional cointegration: definition and nonparametric estimation
We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I(1)’ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples. We subsequently illustrate its usefulness through an application that explores linkages between stock prices and dividends via a sentiment indicator.
cointegration, functional coefficients, piecewise local linear estimation, unit roots
507-520
Banerjee, Anurag
a856f24f-73b1-4730-aafe-bbb05fef4d81
Pitarakis, Jean-Yves
ee5519ae-9c0f-4d79-8a3a-c25db105bd51
1 December 2014
Banerjee, Anurag
a856f24f-73b1-4730-aafe-bbb05fef4d81
Pitarakis, Jean-Yves
ee5519ae-9c0f-4d79-8a3a-c25db105bd51
Banerjee, Anurag and Pitarakis, Jean-Yves
(2014)
Functional cointegration: definition and nonparametric estimation.
Studies in Nonlinear Dynamics & Econometrics, 18 (5), .
(doi:10.1515/snde-2013-0083).
Abstract
We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I(1)’ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples. We subsequently illustrate its usefulness through an application that explores linkages between stock prices and dividends via a sentiment indicator.
Text
SNDE Banerjee and Pitarakis 2014.pdf
- Accepted Manuscript
More information
Accepted/In Press date: 1 January 2014
e-pub ahead of print date: 4 January 2014
Published date: 1 December 2014
Keywords:
cointegration, functional coefficients, piecewise local linear estimation, unit roots
Organisations:
Economics
Identifiers
Local EPrints ID: 390673
URI: http://eprints.soton.ac.uk/id/eprint/390673
ISSN: 1558-3708
PURE UUID: 7efc9f92-3998-4a33-8ba3-08395d6caf6f
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Date deposited: 05 Apr 2016 11:49
Last modified: 15 Mar 2024 03:16
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Author:
Anurag Banerjee
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