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Marco Barassi
 
''On KPSS with GARCH errors''
( 2005, Vol. 3 No.55 )
 
 
In this paper we discuss the finite sample behavior of the KPSS test in the presence of conditionally heteroskedastic errors. We confirm that under stationary GARCH errors the asymptotics of the KPSS remains valid. However, in finite samples we observe a slight size distortion and a power distortion. Interestingly, IGARCH errors do not seem to affect the size of the test, however they may often cause a substantial loss of power.
 
 
Keywords: asymptotic and finite sample properties
 
Manuscript Received : Dec 13 2005 Manuscript Accepted : Dec 13 2005

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