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on Corporate Finance |
| By: | Ahlgren, Niklas (Swedish School of Economics and Business Administration); Antell, Jan (Swedish School of Economics and Business Administration) |
| Abstract: | The likelihood ratio test of cointegration rank is the most widely used test for cointegration. Many studies have shown that its finite sample distribution is not well approximated by the limiting distribution. The article introduces and evaluates by Monte Carlo simulation experiments bootstrap and fast double bootstrap (FDB) algorithms for the likelihood ratio test. It finds that the performance of the bootstrap test is very good. The more sophisticated FDB produces a further improvement in cases where the performance of the asymptotic test is very unsatisfactory and the ordinary bootstrap does not work as well as it might. Furthermore, the Monte Carlo simulations provide a number of guidelines on when the bootstrap and FDB tests can be expected to work well. Finally, the tests are applied to US interest rates and international stock prices series. It is found that the asymptotic test tends to overestimate the cointegration rank, while the bootstrap and FDB tests choose the correct cointegration rank. |
| Keywords: | Bootstrap; Cointegration; Financial time series; Likelihood ratio test |
| Date: | 2006–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhb:hanken:0519&r=cfn |
| By: | Yuliya Demyanyk (Federal Reserve Bank of St. Louis); Charlotte Ostergaard (Norwegian School of Management and Norges Bank); Bent E. Sørensen (University of Houston and CEPR) |
| Abstract: | We estimate the effects of deregulation of U.S. banking restrictions on the amount of interstate personal income insurance during the period 1970–2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific shocks to output. We find that income insurance improved after banking deregulation, and that this effect is larger in states where small businesses are more important. We further show that the impact of deregulation is stronger for proprietors’ income than other components of personal income. Our explanation of this result centers on the role of banks as a prime source of small business finance and on the close intertwining of the personal and business finances of small business owners. Our analysis casts light on the real effects of bank deregulation, on the risk sharing function of banks, and on the integration of bank markets. |
| Keywords: | Financial deregulation, integration of bank markets, interstate risk sharing, small business finance. |
| Date: | 2006–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2006_09&r=cfn |