Cointegration in high frequency data
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Publication:2044337
Abstract: In this paper, we consider a framework adapting the notion of cointegration when two asset prices are generated by a driftless It^{o}-semimartingale featuring jumps with infinite activity, observed regularly and synchronously at high frequency. We develop a regression based estimation of the cointegrated relations method and show the related consistency and central limit theory when there is cointegration within that framework. We also provide a Dickey-Fuller type residual based test for the null of no cointegration against the alternative of cointegration, along with its limit theory. Under no cointegration, the asymptotic limit is the same as that of the original Dickey-Fuller residual based test, so that critical values can be easily tabulated in the same way. Finite sample indicates adequate size and good power properties in a variety of realistic configurations, outperforming original Dickey-Fuller and Phillips-Perron type residual based tests, whose sizes are distorted by non ergodic time-varying variance and power is altered by price jumps. Two empirical examples consolidate the Monte-Carlo evidence that the adapted tests can be rejected while the original tests are not, and vice versa.
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Cited in
(5)- Inference on common intraday periodicity at high frequencies
- Nonparametric test for a constant beta between Itô semi-martingales based on high-frequency data
- Limit laws in transaction-level asset price models
- Testing for cointegration with temporally aggregated and mixed-frequency time series
- Unit root test with high-frequency data
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