Skip navigation

On the Asymptotic Power of the Variance Ratio Test

Authors: Deo, Rohit S.
Richardson, Matthew
Issue Date: 2001
Series/Report no.: FIN-01-059
Abstract: The variance ratio test statistic, which is based on k-period differences of the data, is commonly used in empirical finance and economics to test the random walk hypothesis. We obtain the asymptotic power function of the variance ratio test statistic when the differencing period k is increasing with the sample size n such that k/n → δ > 0. We show that the test is inconsistent against a variety of mean reverting alternatives, confirm the result in simulations, and then characterise the functional form of the asymptotic power in terms of δ and these alternatives.
Appears in Collections:Economics Working Papers

Files in This Item:
File Description SizeFormat 
FIN-01-059.pdf93.81 kBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.