Functional cointegration: definition and nonparametric estimation

Banerjee, A.; Pitarakis, J.-V.

doi:10.1515/snde-2013-0083

Functional cointegration: definition and nonparametric estimation

Banerjee, A.; Pitarakis, J.-V.

Authors

Professor Anurag Banerjee a.n.banerjee@durham.ac.uk
Professor

J.-V. Pitarakis

Abstract

We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I(1)’ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples. We subsequently illustrate its usefulness through an application that explores linkages between stock prices and dividends via a sentiment indicator.

Citation

Banerjee, A., & Pitarakis, J. (2014). Functional cointegration: definition and nonparametric estimation. Studies in Nonlinear Dynamics & Econometrics, 18(5), 507-520. https://doi.org/10.1515/snde-2013-0083

Journal Article Type	Article
Online Publication Date	Jan 4, 2014
Publication Date	Dec 1, 2014
Deposit Date	Jun 3, 2014
Publicly Available Date	Aug 30, 2017
Journal	Studies in Nonlinear Dynamics and Econometrics
Print ISSN	1081-1826
Electronic ISSN	1558-3708
Publisher	De Gruyter
Peer Reviewed	Peer Reviewed
Volume	18
Issue	5
Pages	507-520
DOI	https://doi.org/10.1515/snde-2013-0083
Public URL	https://durham-repository.worktribe.com/output/1460757