Markets: A Rigorous Course

M10 · Problem 13 ★★

Reading ADF output

The notes report ADF statistics of −2.83 (p=0.055p = 0.055) for the full monthly sample, −2.27 for 2001–2019 and −2.16 for 2010–2026. (a) Why is the tt-statistic on γ\gamma not compared with Student-tt critical values? What goes wrong if it is? (b) What is the correct conclusion for each sample at 5% and 10%? (c) The analyst tried three samples and two frequencies. How should that change the reading? (d) Suppose instead the analyst estimated ln⁡Gt=α+βln⁡St+ut\ln G_t = \alpha + \beta\ln S_t + u_t by OLS and ran ADF on u^t\hat u_t. Which critical values apply and why?

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