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Robust Inference on Correlation under General Heterogeneity

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Abstract
Considerable evidence in past research shows size distortion in standard tests for zero autocorrelation or cross-correlation when time series are not independent identically dis-tributed random variables, pointing to the need for more robust procedures. Recent tests for serial correlation and cross correlation in Dalla, Giraitis, and Phillips (2022) provide a more robust approach, allowing for heteroskedasticity and dependence in un-correlated data under restrictions that require a smooth, slowly-evolving deterministic heteroskedasticity process. The present work removes those restrictions and validates the robust testing methodology for a wider class of heteroskedastic time series models and innovations. The updated analysis given here enables more extensive use of the method-ology in practical applications. Monte Carlo experiments conÞrm excellent Þnite sample performance of the robust test procedures even for extremely complex white noise pro-cesses. The empirical examples show that use of robust testing methods can materially reduce spurious evidence of correlations found by standard testing procedures.

Suggested Citation

  • Liudas Giraitis & Yufei Li & Peter C.B. Phillips, 2023. "Robust Inference on Correlation under General Heterogeneity," Cowles Foundation Discussion Papers 2354, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2354
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    References listed on IDEAS

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    2. Yongmiao Hong & Yoon-Jin Lee, 2005. "Generalized Spectral Tests for Conditional Mean Models in Time Series with Conditional Heteroscedasticity of Unknown Form," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 499-541.
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    Cited by:

    1. Liudas Giraitis & George Kapetanios & Yufei Li, 2024. "Regression Modelling under General Heterogeneity," Working Papers 983, Queen Mary University of London, School of Economics and Finance.

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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