DP9654 Testing for Cointegration with Temporally Aggregated and Mixed-frequency Time Series

Author(s): Eric Ghysels, J. Isaac Miller
Publication Date: September 2013
Keyword(s): cointegration, mixed sampling frequencies, residual-based cointegration test, temporal aggregation, trace test
JEL(s): C12, C32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9654

We examine the effects of mixed sampling frequencies and temporal aggregation on standard tests for cointegration. We find that the effects of aggregation on the size of the tests may be severe. Matching sampling schemes of all series generally reduces size, and the nominal size is obtained when all series are skip sampled in the same way. When matching all schemes is not feasible, but when some high-frequency data are available, we show how to use mixed-frequency models to improve the size distortion of the tests. We test stock prices and dividends for cointegration as an empirical demonstration.