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I am trying to determine if 3 stock indices are cointegrated. After running the cointegration test it fails to reject no cointegration. I have used AIC to determine the appropiate number of lags, but at different lags I get some cointegration.

What would be the next step? I know that VECM is used only for cointegrating relationships.

Richard Hardy
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Adrian
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1 Answers1

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If the test results suggest absence of cointegration, you can investigate the relationships between differenced series. If you have three series that are I(1) ($y_1$, $y_2$ and $y_3$), you can model their first differences ($\Delta y_1$, $\Delta y_2$ and $\Delta y_3$) using, for example, a VAR model.

Richard Hardy
  • 67,272