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Functional cointegration : definition and nonparametric estimation.

Banerjee, A. and Pitarakis, J.-V. (2014) 'Functional cointegration : definition and nonparametric estimation.', Studies in nonlinear dynamics and econometrics., 18 (5). pp. 507-520.

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.

Item Type:Article
Full text:(VoR) Version of Record
First Live Deposit - 30 August 2017
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1515/snde-2013-0083
Publisher statement:The final publication is available at www.degruyter.com
Record Created:30 Aug 2017 16:28
Last Modified:30 Aug 2017 16:37

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