On Sun, 1 May 2011, Talha Yalta wrote:
> I want to add a table which will show Johansen tests can give
> different results in small samples when different parameters are used.
> In the table, I just use the trace test results (since this is just to
>
prove a point) and choose lags 1, 2, and 3. I also use the default
> case as well as the --ct option. This results in 6 combinations.
>
> Here is how I proceed:
>
> For a bivariate case, if the trace test rejects c=0 and does not
> reject c=1, I report c=1.
OK.
> If it is the other way around, then I report c=0 as the test
> result.
On the trace test, that result would seem anomalous, and
indicative of a small-sample problem. If there's "enough evidence"
to reject c=1 (with an alternative of c=2), then concluding that
c=0 is problematic.
> As you know, sometimes the results can be contradictory so that c=0
> and c=1 are rejected (or not rejected) simultaneously.
That doesn't seem contradictory: if both c=0 and c=1 are rejected,
that favors the hypothesis that both series are stationary. If
neither c=0 nor c=1 is rejected that suggests they're
both
non-stationary, and not cointegrated.
Allin Cottrell
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