Testing of the mean reversion parameter in continuous time models

C-Tier
Journal: Economics Letters
Year: 2014
Volume: 122
Issue: 2
Pages: 187-189

Score contribution per author:

1.005 = (α=2.01 / 1 authors) × 0.5x C-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

In this paper we use the approximate bias expressions developed in Yu (2012) and Bao et al. (2013) to improve the testing of the ordinary least squares or quasi-maximum likelihood estimator of the mean reversion parameter in continuous time models. We follow the approach given in Iglesias and Phillips (2005) and Chambers (2013), where if we bias correct the estimated mean reversion parameter, we can improve on the small sample properties of the testing procedure. Simulation results confirm the usefulness of this approach using a t-statistic in this setting in the near unit root situation when the mean reversion parameter is approaching its lower bound. Therefore we always recommend bias correcting when applying a t-statistic in practice in this context.

Technical Details

RePEc Handle
repec:eee:ecolet:v:122:y:2014:i:2:p:187-189
Journal Field
General
Author Count
1
Added to Database
2026-01-25