What is Cointegration Test?

What is Cointegration?

A cointegration test is used to establish if there is a correlation between several time series in the long term. The concept was first introduced by Nobel laureates Robert Engle and Clive Granger in 1987 after British economist Paul Newbold and Granger published the spurious regression concept.

Cointegration tests identify scenarios where two or more non-stationary time series are integrated together in a way that they cannot deviate from equilibrium in the long term. The tests are used to identify the degree of sensitivity of two variables to the same average price over a specified period of time.

Cointegration of Gender as an Indicator of Marriage Age

Summary

• Cointegration is a technique used to find a possible correlation between time series processes in the long term.
• Nobel laureates Robert Engle and Clive Granger introduced the concept of cointegration in 1987.
• The most popular cointegration tests include Engle-Granger, the Johansen Test, and the Phillips-Ouliaris test.

History of Cointegration

Before the introduction of cointegration tests, economists relied on linear regressions to find the relationship between several time…