TESTS FOR COINTEGRATION WITH INFINITE VARIANCE ERRORS

This paper develops the asymptotic theory for residual-based tests and quasi-likelihood ratio tests for cointegration under the assumption o f infinite variance errors. This article extends the results of Philli ps and Ouliaris (1990) and Johansen (1988, 1991) which are derived und er the assumption of square-integrable errors. Here the limit laws are expressed in terms of functionals of symmetric stable laws rather tha n Brownian motion. Critical values of the residual-based tests of Phil lips and Ouliaris (1990) and likelihood-ratio-based tests of Johansen (1991) are calculated and tabulated. We also investigate whether these tests are robust to infinite variance errors. We found that regardles s of the index of stability a, the residual-based tests are more robus t to infinite variance errors than the likelihood-ratio-based tests. ( C) 1998 Elsevier Science S.A. All rights reserved.