Publication details for Dr Anurag Narayan BanerjeeBanerjee, A. & Pitarakis, J.-V. (2014). Functional cointegration: definition and nonparametric estimation. Studies in Nonlinear Dynamics & Econometrics 18(5): 507-520.
- Publication type: Journal Article
- ISSN/ISBN: 1081-1826, 1558-3708
- DOI: 10.1515/snde-2013-0083
- Further publication details on publisher web site
- Durham Research Online (DRO) - may include full text
Author(s) from Durham
We formally define a concept of functional cointegration linking the dynamics of two time series via a functional coefficient. This is achieved through the use of a concept of summability as an alternative to I(1)’ness which is no longer suitable under nonlinear dynamics. We subsequently introduce a nonparametric approach for estimating the unknown functional coefficients. Our method is based on a piecewise local least squares principle and is computationally simple to implement. We establish its consistency properties and evaluate its performance in finite samples. We subsequently illustrate its usefulness through an application that explores linkages between stock prices and dividends via a sentiment indicator.