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Publication Detailed Description
Cointegration tests under multiple regime shifts: An application to the stock price–dividend relationship
Journal Title
Empirical Economics
Year (definitive publication)
2011
Language
English
Country
Austria
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Abstract
We examine the properties of several residual-based cointegration tests when long-run parameters are subject to multiple shifts driven by an unobservable Markov process. Unlike earlier study, which considered one-off deterministic breaks, our approach has the advantage of allowing for an unspecified number of stochastic breaks. We illustrate this issue by exploring the possibility of Markov switching cointegration in the stock price-dividend relationship and showing that this case is empirically relevant. Our subsequent Monte Carlo analysis reveals that standard cointegration tests are generally reliable, their performance often being robust for a number of plausible regime shift parameterizations.
Acknowledgements
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Keywords
Present value model; Cointegration tests; Markov switching
Fields of Science and Technology Classification
- Economics and Business - Social Sciences
- Sociology - Social Sciences
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