Quantile Unit Root Test Research Articles

Quantile analysis for financial bubble detection and surveillance

Understanding and monitoring financial bubbles is critical, as they can lead to market instability, asset price crashes, and economic downturns with widespread consequences. This article explores the usefulness of quantile regression (QR) technique in detecting and surveilling financial bubbles, encompassing both global testing and real‐time monitoring. We demonstrate that the QR‐based quantile unit root test, coupled with an optimal quantile selection technique, serves as an effective tool for a global bubble test without necessitating additional recursive techniques. Moreover, we propose two QR‐based bubble monitoring techniques. We show that the monitoring statistics follow a random variate under the null hypothesis of no bubbles but diverge to positive infinity in the presence of a mildly explosive bubble, and hence consistently date the origination of a bubble. Monte Carlo simulations suggest that compared with their LS counterparts, in the presence of skewed distributions, the QR‐based global test delivers substantially greater power, while the QR‐based monitoring procedures offer higher bubble detection rate and more accurate dating of the bubble origination. As an illustration, we conduct a pseudo real‐time monitoring exercise with the S&P 500 composite index.

Investigating the persistence degree of environmental patent: application of panel SPSM-quantile unit root test

ABSTRACT This article analyzes the degree of persistence of shocks to environmental patents in the OECD countries from 1980 to 2022 by applying the panel quantile unit root (PQUR) test and sequential panel selection (SPS) method. Our results indicate that most OECD countries reveal similar stochastic behaviours, where low and extreme (middle and moderate high) quantiles behave as unit root (stationary) processes. According to our findings, except for the US, the time series of environmental patents of other OECD countries behaved as a unit root process in 2022. Accordingly, the mandatory and incentive pro-green innovation policies have long-lasting effects on the development of the patents.

House price convergence in the very long run

AbstractWe examine the house price convergence across 12 OECD countries over the period 1905–2016. Using novel quantile unit root tests which allow for smooth breaks via a Fourier expansion series, we find that nine countries show the presence of relative house price convergence at all the quantiles. Focusing on several specific quantiles, 11 countries have significant convergence tendencies. Moreover, there are four definite patterns related to shocks in the relative house prices across quantiles.

Analyzing the degree persistence of shocks to energy security of the G7 countries: Evidence using panel SPSM-quantile unit root test

Energy security is affected by extreme natural, human, domestic political, geopolitical, and fossil energy price shocks/events and green energy policies. The degree of persistence in energy security determines the magnitudes of social, economic, and environmental outcomes of the shocks/policies. In this paper, we examined the degree of persistence in energy security of G7 countries using a new proxy namely the energy security risk index, and a novel second-generation panel quantile unit root test over the period 1980–2018. In addition, we applied the sequential panel selection method (SPSM), to identify the stationary members within each quantile. Our results indicated the stochastic properties of the energy security risk indexes vary across the quantile and the countries. Among the G7 countries, the energy security risk index of the US displays unit root process within all quantiles. While the energy security risk indexes of other countries display stationary processes, especially within high quantiles. Our results have important policy implications regarding the effectiveness of green policies in improving the energy security of the G7 countries and the disturbance effects of anti-energy security shocks. According to our findings, the US has to constantly pursue the risks that threaten the country's energy system while other G7 countries likely do not have such severe concerns about shocks affecting energy security, and these shocks have a short-term effect on their energy security.

The INVESTIGATION OF ASYMMETRIC DYNAMICS OF BORSA ISTANBUL INDEX WITH QUANTILE UNIT ROOT TEST

In this study, we apply the quantile unit root test, which provides robust inferences for non-normal processes based on the quantile autoregression approach, to examine the asymmetric dynamic process of the BIST100 Borsa Istanbul index. The quantile autoregression approach allows the measurement of the persistency of shocks of different magnitudes and signs affecting the stock market index and can capture the adjustment of asymmetric dynamics in the long-run equilibrium of the index. Therefore, quantile unit root tests add new approaches to index dynamics compared to traditional unit root methodologies based on the least squares regression method. Our results show that the index not only returns to the mean but also exhibits asymmetric behavior in its dynamic structure. Compared to traditional unit root tests, quantile unit root tests provide more evidence to support the efficiency of the stock market index and show that the stock market index at different frequencies does not consistently have a unit root. Asymmetric inferences in shock magnitude and sign play an important role in asset pricing and forecasting in the securities market.

Analyzing the efficient market hypothesis with asymmetric persistence in cryptocurrencies: Insights from the Fourier non-linear quantile unit root approach

We test the efficient market hypothesis (EMH) in Bitcoin (BTC) and Ethereum (ETH) using the further Fourier nonlinear quantile (FNQKS) unit root test by Bahmani-Oskooee et al. (2020). While conventional tests support EMH in the cryptocurrency market, the FNQKS unit root test does not support EMH. Considering non-linearity, Fourier breaks, and non-normal distribution in BTC and ETH exhibit asymmetric persistence. This allows investors to make adjustments to their portfolios in response to both negative and positive shocks.

Asymmetric persistence in Turkish interest and inflation rates: New evidence from quantile unit root test with structural shifts

AbstractThis study investigates the persistence in Turkish interest and inflation rates since the implementation of inflation‐targeting monetary policy, covering the period from January 2006 to July 2022. We focus on accounting for asymmetric persistence by benefiting from recent developments in quantile unit root analysis. The findings indicate that while the conventional unit root tests support the persistence of shocks to interest rates and inflation, the quantile unit root test demonstrates an asymmetric behaviour of the persistence, implying a time‐varying structure with mean reversion (persistency) of the shocks in low (high) inflation periods. Furthermore, the half‐lives increase with the positive shocks, indicating a longer speed of adjustment in the high inflation regime. These findings provide new insights into the relationship between interest rates and inflation and have sound policy implications.

Asymmetric persistence and the unemployment hysteresis question in emerging markets: evidence from advanced quantile unit-root tests

Solving the unemployment hysteresis puzzle is vital to government policies, since the structural or cyclical nature of the problem constitutes the direction of the policies to be implemented. This study aims to provide new findings by examining the unemployment hysteresis puzzle for emerging markets from an asymmetric perspective. This study conducts a comprehensive analysis using both conventional and quantile unit root tests. We focus on the Fourier non-linear quantile unit root test, which considers heavy-tailed (non-normal) distributions, structural shifts, non-linearity, and asymmetric adjustment simultaneously. The results indicate that in the Dickey and Fuller test and its extensions, while the null hypothesis of the unit root is rejected in 33% of emerging markets, this rate increases to 55% in quantile Kolmogorov-Smirnov tests and dramatically to 72% in Fourier non-linear quantile unit root test. These findings provide fresh evidence for solving the unemployment hysteresis puzzle in emerging markets.

Exploring the tourism markets’ convergence hypothesis in South Korea

This paper examines the tourism markets’ convergence hypothesis across South Korea’s major source markets. In doing so, we use monthly data of visitor arrivals over the period July 1995 to June 2019 and adopt a novel quantile unit root tests that allows for multiple structural breaks via a Fourier expansion series. Our results indicate that seven countries out of 10 show firm convergence tendencies at most of the quantiles, and two countries have weak but significant converging trends at some quantiles.

Quantile integration order of decarbonized energy series using a Fourier function in the deterministic trend

The logic of analysing the stationary features in energy series lays in the policy potentials that unit root assessments confer. This paper identifies the integration properties of renewable energy consumption series in Germany, Italy, Poland, France, Spain, and Netherlands: six energy leaders but also top carbon emitters in the Schengen area. A stepwise integration property testing framework is applied on data spanning more than five decades. It includes a set of univariate unit root tests (ADF, PP, DFGLS, and Kwiatkowski–Phillips–Schmidt–Shin tests); stationary procedures allowing for endogenously determined structural breaks in the intercept and the time-trends (CMR, ZA); double breaks in the deterministic trend (LS); along with the Bahmani-Oskooee et al. (2017)’s extension of the Koenker and Xiao (2004) Fourier Quantile Unit Root test incorporating smooth breaks in the deterministic trend. In neither France, nor Italy, Poland, or Spain, renewable energy consumption series reject the null hypothesis of non-stationarity. This contrasts with German data displaying quantiles-varied integrational properties, whereas the Netherlands presents stable stationary features along each stage of the procedure. In addition to prospects for future research, policy suggestions involving bridging fuels are proposed to offer a secure and less volatile supply of green energies, reach IPCC climate targets, and avoid transitory shocks transmitted back to macroeconomic variables.

Is art market efficient? Evidence from non-linear quantile unit-root tests

ABSTRACT In this paper, we use quarterly stock price index data to test the weak form of the efficient market hypothesis for 13 art market indices. The fact that hypotheses can be efficiently tested by performing unit root tests is well known. The conventional unit root test results show that most art indices have unit roots, which means that these art markets are efficient. However, the results of the non-linear quantile unit root tests we conduct over a range of quantiles lead us to reject the null of the unit root test for several art markets. To acquire more information, we perform the test over sub-quantile intervals, finding asymmetric market efficiency between the low and high quantile intervals: we cannot reject the unit root null in upper quantile intervals for most art price indices.

Quantile causality and dependence between renewable energy consumption, WTI prices, and CO2 emissions: new evidence from the USA.

This study investigates the Granger causal interplays between renewable energy consumption, WTI crude oil prices, and CO2 emissions in the USA using monthly data between January 1986 and May 2022. The study applies quantile-based techniques, namely, the quantile unit root test developed by Galvao (2009), the quantile cointegration test proposed by Xiao (2009), and the novel Granger causality-in-quantiles test suggested by Troster (2018). The results suggest that the series display a unit root across different quantiles and that the cointegration relationships exhibit heterogeneous behavior across quantiles. Regarding the causal linkages, the findings show: (i) a unidirectional causality from renewable energy consumption to oil prices, mainly at the lowest or highest quantiles of the distribution, (ii) a bidirectional causality between oil prices and CO2 emissions mainly in the middle and extreme quantiles, but there is evidence of causality from oil prices to CO2 emissions across the quantiles than in the reverse direction, and (iii) a unidirectional causality from renewable energy consumption to CO2 emissions at the lowest to medium and the highest quantiles. These findings have important implications for policy-makers.

Nexus between macroeconomic uncertainty, oil prices, and exports: evidence from quantile-on-quantile regression approach.

International trade is key to boosting the economic growth and development of an economy. Hence, it becomes critical to analyze its determinants. The present study attempts to empirically analyze the determinants of trade exports of Pakistan with its top-5 trade partners. The prior literature suffers from biased findings due to deploying the aggregate data and ignoring the likely asymmetries in the drivers of the exports. The present study has used the monthly data of oil prices and macroeconomic uncertainty in order to empirically investigate the determinants of exports. For the purpose of analysis, several advanced econometric (quantile unit root, cointegration, and granger causality) tests and (quantile-on-quantile regression) techniques are utilized to handle the issue of asymmetries in the modeled series. The findings reveal a positive and significant relationship between oil prices in Pakistan and exports. Furthermore, macroeconomic uncertainty has a significantly negative impact on the country's exports. Based on the results, key policy implications are provided.

Quantile Dependence between Crude Oil Returns and Implied Volatility: Evidence from Parametric and Nonparametric Tests

We examine the daily dependence and directional predictability between the returns of crude oil and the Crude Oil Volatility Index (OVX). Unlike previous studies, we apply a battery of quantile-based techniques, namely the quantile unit root test, the causality-in-quantiles test, and the cross-quantilogram approach. Our main results show evidence of significant bi-directional predictability that is quantile-dependent and asymmetric. A significant positive Granger causality runs from oil (OVX) returns to OVX (oil) returns when both series are in similar lower (upper) quantiles, as well as in opposite quantiles. The Granger causality from OVX returns to oil returns is only significant during periods of high volatility, although it is not always positive. The findings imply that the forward-looking estimate of oil volatility, reflecting the sentiment of oil market participants, should be considered when studying price variations in the oil market, and that crude oil returns can be used to predict oil implied volatility during bearish market conditions. Therefore, the findings have implications regarding predictability under various conditions for oil market participants.

Measuring the persistence degree of shocks to the US tourism markets: new evidence for COVID-19 pandemic period

ABSTRACT Regarding the huge negative effects of the COVID-19 pandemic on the tourism market of the US, we investigate the persistent degree of the shocks to three markets: overseas, Canada, and Mexico. To measure persistence degree and its dynamics, we apply the Fourier quantile unit root test and rolling-window indirect inference estimators. Overall results indicate (i) negative shocks to the US’ tourist markets have more long-lasting effects than positive ones, (ii) degree of persistence of all three markets increased due to the COVID-19 pandemic, and (iii) Canada tourist marker displays more persistence behaviour than the other two markets.

Does US Infectious Disease Equity Market Volatility Index Predict G7 Stock Returns? Evidence Beyond Symmetry

During the COVID-19 pandemic, Baker et al. (2020) [The unprecedented stock market reaction to COVID-19. The Review of Asset Pricing Studies, 10, 742–758.] proposed the infectious disease equity market volatility (ID-EMV) index, which tracks US equity market volatility caused by infectious diseases. We extended the literature by using this newly developed ID-EMV index to examine its asymmetric effect on the share market returns of the G7 countries, which include the United Kingdom, Italy, Japan, Germany, France, Canada, and the United States of America. Moreover, we used novel techniques like the quantile-on-quantile regression test, quantile cointegration test, and quantile unit root test. The quantile cointegration test indicates that the infectious disease EMV index is cointegrated with G7 stock returns. Moreover, the quantile-on-quantile regression technique reveals that the infectious disease index positively affects stock returns during bullish states of the stock markets. In contrast, it negatively affects stock returns during bearish states of the stock market returns. The negative effect of the bearish states implies that investors may discourage investments during the downturns of the economy, whereas they need to boost their investments during economic booms.

Persistence of shocks on sectoral non-methane volatile organic compound from 1820 to 2019: Insights from a fourier quantile unit root test

Despite being directly related to anthropogenic consumption and production, researchers have paid less attention to understanding the dynamics of non-methane volatile organic compounds. The primary objective of this research is to investigate the persistence of potential shocks to non-methane volatile organic compounds in 20 developed from 1820 to 2019 performing traditional unit root approaches and a newly developed Fourier quantile unit root test. Great portion of the empirical results obtained by traditional unit root tests reveal that the sectoral non-methane volatile organic compounds follow a non-stationary process, while the Fourier quantile unit root test indicate quite different results. The Fourier quantile test shows that non-methane volatile organic compounds are stationary in the United Kingdom, Ireland, Germany, France and Austria. In the other 15 countries, government interventions to reduce non-methane volatile organic compounds can have lasting effects and success. The inferences and policy outcomes of the empirical results are discussed in the main body of the paper.

Fourier Nonlinear Quantile Unit Root Test of Purchasing Power Parity in cryptocurrencies

ABSTRACT The primary purpose of this article is to conduct the Fourier Nonlinear Unit Root Test to check Purchasing Power Parity (PPP) for seven cryptocurrencies traded in seventeen countries from 2010 to 2021. The unit root test supports the PPP hypothesis when we use each cryptocurrency separately for all the countries. However, the PPP hypothesis is strongly supported when we pool them together by countries and cryptocurrencies. This finding is in line with the power of the test issue of the PPP for regular PPP testing, which also holds good in cryptocurrencies.

Quantile unit root inference for panel data with common shocks

This paper proposes new quantile unit root tests for panel data with common shocks, whose critical values can be simulated based on our asymptotic theory. The Monte Carlo simulation results indicate that our tests perform well in finite sample. An application for real effective exchange rates (REERs) suggests that the Purchasing Power Parity (PPP) hypothesis holds for higher quantiles but does not hold for lower ones, and the asymmetric dynamics of REERs provide a plausible explanation for the PPP puzzle. • We extend quantile unit root test to panel data with common shocks. • A simple and practical procedure for the tests is proposed, and the critical values can be obtained based on our asymptotic theory. • Monte Carlo simulations suggest the tests perform well in finite sample. • An application for real effective exchange rates (REERs) indicate that there are asymmetric dynamics in REER series, which provides a plausible explanation for the PPP puzzle.

Testing the validity of purchasing power parity for China: Evidence from the Fourier quantile unit root test

AbstractWe revisit the purchasing power parity (PPP) between China and its five major trading partners, namely European Union, United States, Brazil, Japan, and Korea. Conventional unit root tests with structural breaks have mostly failed to validate the PPP. Apart from using CPI as the price index, the tradable‐goods price index is also used to test the PPP hypothesis (Balassa–Samuelson effect). Using the Fourier quantile unit root test for the potential structural breaks and non‐Gaussian distribution reveals strong evidence that the PPP holds between China and its five major trading partners.