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Markov chain test for time dependence and homogeneity: an analytical and empirical evaluation

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This paper evaluates the small and large sample properties of Markov chain time-dependence and time-homogeneity tests. First, we present the Markov chain methodology to investigate various statistical properties of time series. Considering an auto-regressive time series and its associated Markov chain representation, we derive analytical measures of the statistical power of the Markov chain time-dependence and time-homogeneity tests. We later use Monte Carlo simulations to examine the small-sample properties of these tests. It is found that although Markov chain time-dependence test has desirable size and power properties, time-homogeneity test does not perform well in statistical size and power calculations.

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Elsevier

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Business and economics, Economics

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European Journal of Operational Research

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10.1016/S0377-2217(01)00081-9

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