A Small-Sample Overlapping Variance-Ratio Test

The null distribution of the overlapping variance-ratio (OVR) test of the random-walk hypothesis is known to be downward biased and skewed to the right in small samples. As shown by , the test under-rejects the null on the left tail seriously when the sample size is small. This property adversely af...

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Main Authors: TSE, Yiu Kuen, NG, K. W., ZHANG, Xibin
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2004
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Online Access:https://ink.library.smu.edu.sg/soe_research/149
https://ink.library.smu.edu.sg/context/soe_research/article/1148/viewcontent/A_Small_Sample_Overlapping_Variance_Ratio_Test.pdf
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spelling sg-smu-ink.soe_research-11482018-05-07T01:36:48Z A Small-Sample Overlapping Variance-Ratio Test TSE, Yiu Kuen NG, K. W. ZHANG, Xibin The null distribution of the overlapping variance-ratio (OVR) test of the random-walk hypothesis is known to be downward biased and skewed to the right in small samples. As shown by , the test under-rejects the null on the left tail seriously when the sample size is small. This property adversely affects the applicability of the OVR test to macroeconomic time series, which usually have rather small samples. In this paper, we propose a modified overlapping variance-ratio statistic and derive its exact mean under the normality assumption. We propose to approximate the small-sample distribution of the modified statistic using a beta distribution that matches the (exact) mean and the (asymptotic) variance. A Monte Carlo experiment shows that the beta approximation performs well in small samples. 2004-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/149 info:doi/10.1046/j.0143-9782.2003.01804.x https://ink.library.smu.edu.sg/context/soe_research/article/1148/viewcontent/A_Small_Sample_Overlapping_Variance_Ratio_Test.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Beta distribution Monte Carlo experiment random-walk hypothesis variance-ratio test Econometrics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Beta distribution
Monte Carlo experiment
random-walk hypothesis
variance-ratio test
Econometrics
spellingShingle Beta distribution
Monte Carlo experiment
random-walk hypothesis
variance-ratio test
Econometrics
TSE, Yiu Kuen
NG, K. W.
ZHANG, Xibin
A Small-Sample Overlapping Variance-Ratio Test
description The null distribution of the overlapping variance-ratio (OVR) test of the random-walk hypothesis is known to be downward biased and skewed to the right in small samples. As shown by , the test under-rejects the null on the left tail seriously when the sample size is small. This property adversely affects the applicability of the OVR test to macroeconomic time series, which usually have rather small samples. In this paper, we propose a modified overlapping variance-ratio statistic and derive its exact mean under the normality assumption. We propose to approximate the small-sample distribution of the modified statistic using a beta distribution that matches the (exact) mean and the (asymptotic) variance. A Monte Carlo experiment shows that the beta approximation performs well in small samples.
format text
author TSE, Yiu Kuen
NG, K. W.
ZHANG, Xibin
author_facet TSE, Yiu Kuen
NG, K. W.
ZHANG, Xibin
author_sort TSE, Yiu Kuen
title A Small-Sample Overlapping Variance-Ratio Test
title_short A Small-Sample Overlapping Variance-Ratio Test
title_full A Small-Sample Overlapping Variance-Ratio Test
title_fullStr A Small-Sample Overlapping Variance-Ratio Test
title_full_unstemmed A Small-Sample Overlapping Variance-Ratio Test
title_sort small-sample overlapping variance-ratio test
publisher Institutional Knowledge at Singapore Management University
publishDate 2004
url https://ink.library.smu.edu.sg/soe_research/149
https://ink.library.smu.edu.sg/context/soe_research/article/1148/viewcontent/A_Small_Sample_Overlapping_Variance_Ratio_Test.pdf
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