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A non-parametric spectral test of serial correlation

Shackleton, M B (1999) A non-parametric spectral test of serial correlation. Working Paper. The Department of Accounting and Finance, Lancaster University.

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Abstract

Parametric tests of serial correlation require specification of a maximum lag length L, and in some manner combine serial correlation coefficients of equal or lesser order than this maximum horizon. If L is chosen to be too high, test power against a range of alternate hypotheses may be lost because of the inclusion of insignificant correlations while if it is chosen too low, the longer range features of some alternates may be missed. This paper presents a spectral test that is based in the frequency domain that does not require specification of a maximum lag length. Implicitly it considers all possible lagged correlations by examining the distribution of all frequencies present in the time series counterpart. To compare this new test to the Ljung-Box test with horizon length L, (LB(L)), the finite sample, size and power characteristics are simulated for a range of degrees of significance for two alternate hypotheses. The performance of the spectral test is comparable to or better than the time series test LB(L) when L is chosen with the advance knowledge that it exceeds the maximum lag structure in the alternate and is vastly superior to the LB(L) test when L does not encompass the maximum lag length.

Item Type: Monograph (Working Paper)
Subjects: UNSPECIFIED
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 48587
Deposited By: ep_importer_pure
Deposited On: 11 Jul 2011 22:01
Refereed?: No
Published?: Published
Last Modified: 27 Jul 2012 01:10
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/48587

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