Discontinuity of Fully Extended (Local) Whittle Estimation

16 Pages Posted: 12 Feb 2018

See all articles by Ying Lun Cheung

Ying Lun Cheung

Goethe University Frankfurt

Uwe Hassler

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: February 8, 2018

Abstract

We consider the fully extended local Whittle estimator of the fractional order of integration d proposed by Abadir, Distaso and Giraitis (2007), and the extended parametric Whittle estimator suggested by Shao (2010). They are valid under stationarity as well as nonstationarity: a priori knowledge whether the true d_0 < 1/2 or not is not required. Experimentally, we observe a lack of continuity of the objective functions at d = 1/2 that has not been reported before. It results in a pile-up of the estimates at d = 1/2 when the true value is in a neighbourhood to this half point. Consequently, studentized test statistics may be heavily oversized.

Keywords: Nonstationarity, fractional integration

JEL Classification: C12, C22

Suggested Citation

Cheung, Ying Lun and Hassler, Uwe, Discontinuity of Fully Extended (Local) Whittle Estimation (February 8, 2018). Available at SSRN: https://ssrn.com/abstract=3120575 or http://dx.doi.org/10.2139/ssrn.3120575

Ying Lun Cheung

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Uwe Hassler (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, D-60323
Germany

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