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Author: Omay, TolgaPublisher: Mdpi

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Now showing 1 - 4 of 4
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    Article
    Citation - WoS: 3
    Citation - Scopus: 4
    High Persistence and Nonlinear Behavior in Financial Variables: a More Powerful Unit Root Testing in the Estar Framework
    (Mdpi, 2021) Omay, Tolga; Corakci, Aysegul; Hasdemir, Esra
    In this study, we consider the hybrid nonlinear features of the Exponential Smooth Transition Autoregressive-Fractional Fourier Function (ESTAR-FFF) form unit root test. As is well known, when developing a unit root test for the ESTAR model, linearization is performed by the Taylor approximation, and thereby the nuisance parameter problem is eliminated. Although this linearization process leads to a certain amount of information loss in the unit root testing equation, it also causes the resulting test to be more accessible and consistent. The method that we propose here contributes to the literature in three important ways. First, it reduces the information loss that arises due to the Taylor expansion. Second, the research to date has tended to misinterpret the Fourier function used with the Kapetanios, Shin and Snell (2003) (KSS) unit root test and considers it to capture multiple smooth transition structural breaks. The simulation studies that we carry out in this study clearly show that the Fourier function only restores the Taylor residuals of the ESTAR type function rather than accounting forthe smooth structural break. Third, the new nonlinear unit root test developed in this paper has very strong power in the highly persistent near unit root environment that the financial data exhibit. The application of the Kapetanios Shin Snell- Fractional Fourier (KSS-FF) test to ex-post real interest rates data of 11 OECD countries for country-specific sample periods shows that the new test catches nonlinear stationarity in many more countries than the KSS test itself.
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    Article
    Citation - WoS: 1
    Citation - Scopus: 1
    Testing for Unit Roots in Nonlinear Dynamic Heterogeneous Panels With Logistic Smooth Breaks
    (Mdpi, 2023) Omay, Tolga; Ucar, Nuri
    In this study, we investigate the validity of the purchasing power parity (PPP) proposition for 34 European and selected global countries. For this purpose, we propose a new unit root test for cross-sectionally dependent heterogeneous panels that allows for gradual structural breaks and symmetric nonlinear adjustment toward the equilibrium level. The alternative hypothesis stationary is obtained by symmetric adjustment due to exponential smooth transition autoregression (ESTAR) around a nonlinear trend. Moreover, we provide small sample properties extensively for the newly proposed test. Hence, this alternative hypothesis has been proven to characterize real exchange rate data (REER) correctly. Thus, the newly proposed tests provide an essential basis for modeling the REER series correctly. Finally, we also derive the approximate asymptotic distribution of the proposed tests using new techniques.
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    Article
    Citation - WoS: 14
    Citation - Scopus: 16
    Smooth Break Detection and De-Trending in Unit Root Testing
    (Mdpi, 2021) Emirmahmutoglu, Furkan; Omay, Tolga; Shahzad, Syed Jawad Hussain; Nor, Safwan Mohd
    This study explores the methods to de-trend the smooth structural break processes while conducting the unit root tests. The two most commonly applied approaches for modelling smooth structural breaks namely the smooth transition and the Fourier functions are considered. We perform a sequence of power comparisons among alternative unit root tests that accommodate smooth or sharp structural breaks. The power experiments demonstrate that the unit root tests utilizing the Fourier function lead to unexpected results. Furthermore, through simulation studies, we investigate the source of such unexpected outcomes. Moreover, we provide the asymptotic distribution of two recently proposed unit root tests, namely Fourier-Augmented Dickey-Fuller (FADF) and Fourier-Kapetanios, Shin and Shell (FKSS), which are not given in the original studies. Lastly, we find that the selection of de-trending function is pivotal for unit root testing with structural breaks.
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    Article
    Citation - Scopus: 2
    The Refinement of a Common Correlated Effect Estimator in Panel Unit Root Testing: an Extensive Simulation Study
    (Mdpi, 2024) Omay, Tolga; Akdi, Yilmaz; Emirmahmutoglu, Furkan; Eryilmaz, Meltem
    The Common Correlated Effect (CCE) estimator is widely used in panel data models to address cross-sectional dependence, particularly in nonstationary panels. However, existing estimators have limitations, especially in small-sample settings. This study refines the CCE estimator by introducing new proxy variables and testing them through a comprehensive set of simulations. The proposed method is simple yet effective, aiming to improve the handling of cross-sectional dependence. Simulation results show that the refined estimator eliminates cross-sectional dependence more effectively than the original CCE, with improved power properties under both weak- and strong-dependence scenarios. The refined estimator performs particularly well in small sample sizes. These findings offer a more robust framework for panel unit root testing, enhancing the reliability of CCE estimators and contributing to further developments in addressing cross-sectional dependence in panel data models.