What is K in ADF test?
The k parameter is a set of lags added to tackle serial correlation. The A in ADF means that the test is augmented by the addition of lags. The selection of the number of lags in ADF can be done in different ways.
How does ADF test work?
In statistics and econometrics, an augmented Dickey–Fuller test (ADF) tests the null hypothesis that a unit root is present in a time series sample. The more negative it is, the stronger the rejection of the hypothesis that there is a unit root at some level of confidence.
What is a unit root in time series?
A unit root (also called a unit root process or a difference stationary process) is a stochastic trend in a time series, sometimes called a “random walk with drift”; If a time series has a unit root, it shows a systematic pattern that is unpredictable.
What kind of test is the DF-GLS test?
test (known as the DF-GLS test) proposed by Elliott, Rothenberg, and Stock 1996). Essentially, the test is an augmented ( Dickey–Fuller test, similar to the test performed by Stata’s dfuller command, except that the time series is transformed via a generalized least squares ( GLS ) regression before performing the test.
When to use KPSS vs DF-GLS?
The KPSS test is viewed as complementary to the more commonly employed tests, since it may be used to verify their results: if, say, the DF-GLS test fails to reject its null of a unit root, and the KPSS test rejects, then the evidence from both tests is supportive of a unit root in the series.
How does the DF-GLS unit root test work?
The DF-GLS unit root test. Although common practice in time series modelling has involved the ap- plication of (augmented) Dickey-Fuller and Phillips-Perron tests to determine whether a series possesses a unit root, improved tests with much better sta- tistical properties are now available.
What’s the difference between DF-GLS and augmented Dickey Fuller?
DF-GLS test) proposed by Elliott, Rothenberg, and Stock 1996). Essentially, the test is an augmented ( Dickey–Fuller test, similar to the test performed by Stata’s dfuller command, except that the time series is transformed via a generalized least squares ( GLS ) regression before performing the test.
