On the properties of some tests for common stochastic trends

Abstract

We study the asymptotic properties of the tests suggested by Choi and Ahn (1995, Econometric Theory 11, 952-983) in the case of a (nearly) improper normalization of the cointegration vectors. To overcome the size problems in such situations we suggest a test statistic that is based on the eigenvalues of a canonical correlation analysis. Using Monte Carlo simulations, the small sample properties of our test are compared to various other test statistics recently suggested in the literature.