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Comovements Between Diffusion Processes

Characterization, Estimation, and Testing

Published online by Cambridge University Press:  11 February 2009

Valentina Corradi
Affiliation:
University of Pennsylvania

Abstract

The aim of this paper is to characterize and analyze long-run comovements among diffusion processes. Broadly speaking, if X = (X1,,X2,;t ≥ 0) is a nonergodic diffusion in R2, but there exists a linear combination, say, γ′X, that is instead ergodic in R, then we say there exists a linear stochastic comovement between the components of X. Linear diffusions exhibiting stochastic comovements admit an error correction representation. Estimation of γ and hypothesis testing, under different sampling schemes, are considered.

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Copyright © Cambridge University Press 1997

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