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A0315
Title: Semiparametrically optimal hybrid rank tests for unit roots Authors:  Ramon Van den Akker - Tilburg University (Netherlands) [presenting]
Bo Zhou - Tilburg University (Netherlands)
Bas Werker - Tilburg University (Netherlands)
Abstract: The aim is to propose a new class of unit root tests that exploits invariance properties in the Locally Asymptotically Brownian Functional limiting experiment of the unit root model. These invariance structures naturally suggest tests based on the ranks of the increments of the observations, their mean, and an assumed reference density for the innovations. The tests are semiparametric in the sense that the reference density need not equal the true innovation density. For correctly specified reference density, the asymptotic power curve of our test is point-optimal and nearly efficient. When using a Gaussian reference density, our test performs as well as commonly used tests under true Gaussian innovations and better under other distributions, e.g., fat-tailed or skewed. Monte Carlo evidence shows that our test also behaves well in small samples.