Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question Four
a) Outline step-by-step, the Johansen's methodology for testing for cointegration
between a set of variables in the context of a VAR.
b) Suppose that a researcher has a set of three variables, yt (t = 1, ........., T),
i.e. y denotes a p-variate, or p x 1 vector, that she wishes to test for the existence of
cointegrating relationships using the Johansen procedure.
What is the implication of finding that the rank of the appropriate matrix takes on a
value of;
i.) 0
ii.) 1
iii.)2
iv.)3?
c) The researcher obtains results for the Johansen test using the variables outlined in
part (b) as follows:
r
0123.
λmax
38.65
26.91
10.67
8.55
5% critical value
30.26
23.84
17.72
10.71
Determine the number of cointegrating vectors, explaining your answer.
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