TESTS FOR FRACTIONAL INTEGRATION: A MONTE CARLO INVESTIGATION

Abstract. The performance of the Geweke‐Porter‐Hudak (GPH) test, the modified rescaled range (MRR) test and two Lagrange multiplier (LM) type tests for fractional integration in small samples is examined using Monte Carlo methods. Both the GPH and MRR tests are found to be robust to moderate autoregressive moving‐average components, autoregressive conditional heteroskedasticity effects and shifts in the variance. However, these two tests are sensitive to large autoregressive moving‐average components and shifts in the mean. It is also found that the LM tests are sensitive to deviations from the null hypothesis. As an illustration, the GPH test is applied to two economic data series.

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