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A Primer for Unit Root TestingBrownian Motion: Basic Concepts

A Primer for Unit Root Testing: Brownian Motion: Basic Concepts [Brownian motion is a key concept in economics in two respects. It underlies an important part of stochastic finance, which includes the pricing of risky assets, such as stock prices, bonds and exchange rates. For example a central model for the price of a risky asset is that of geometric Brownian motion (see Chapter 7). It also plays a key role in econometrics, especially in the distribution theory underlying test statistics for a unit root. For example, the limiting distribution of the familiar Dickey-Fuller pseudo-t test for a unit root is a functional of Brownian motion.] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A Primer for Unit Root TestingBrownian Motion: Basic Concepts

Part of the Palgrave Texts in Econometrics Book Series
Patterson, Kerry
Springer Journals — Nov 12, 2015
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20 pages

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Publisher
Palgrave Macmillan UK
Copyright
© Palgrave Macmillan, a division of Macmillan Publishers Limited 2010
ISBN
978-1-4039-0205-4
Pages
160 –180
DOI
10.1057/9780230248458_6
Publisher site
See Chapter on Publisher Site

Abstract

[Brownian motion is a key concept in economics in two respects. It underlies an important part of stochastic finance, which includes the pricing of risky assets, such as stock prices, bonds and exchange rates. For example a central model for the price of a risky asset is that of geometric Brownian motion (see Chapter 7). It also plays a key role in econometrics, especially in the distribution theory underlying test statistics for a unit root. For example, the limiting distribution of the familiar Dickey-Fuller pseudo-t test for a unit root is a functional of Brownian motion.]

Published: Nov 12, 2015

Keywords: Brownian Motion; Random Walk; Unit Root; Sample Path; Risky Asset

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