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I have a data set for a variable, for which I have run some unit-root tests:

  • ADF (constant/without trend): t-stat=-1.0816, p-val=0.7218 - DNR
  • ADF (constant & trend): t-stat=-4.5203, p-val=0.0021 - REJECT @5% level
  • PP (constant/without trend): t-stat=-1.3507, p-val=0.6044 - DNR
  • PP (constant & trend): t-stat=-3.6030, p-val=0.0334 - REJECT @5% level

(Note I have also run all of the above tests with the first-differenced values, and they ALL reject the null of the presence of a unit root.)

As I understand, I fail-to-reject the null on both the ADF & PP tests with ONLY a constant (no trend), but statistically reject the null for both tests when a trend is included.

What should I conclude about the data series - is this indicative of any statistical property I may be ignoring/oblivious to? What does this indicate as to the presence of a unit-root in the series given the contradictory results of the tests?

EDIT: Just have run into the opposite problem on another data series: ADF & PP (no trend) Rejects the null but ADF & PP WITH trend Does Not Reject the null.

What would this case of the problem mean?

I feel like I'm missing something - the Alternative Hypotheses?

Thanks

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  • $\begingroup$ You should consider if the series under study "needs" a trend term in the test regression, i.e., whether, under the alternative, stationarity around a linear time trend or stationarity around some mean seems more appealing. $\endgroup$ – Christoph Hanck Feb 25 at 6:39
  • $\begingroup$ @ChristophHanck I'm a bit ignorant regarding the alternatives, how would I go about doing what you suggest? $\endgroup$ – Alexander Butler Feb 25 at 6:49
  • $\begingroup$ I hope that this answer might help: stats.stackexchange.com/questions/173040/… $\endgroup$ – Christoph Hanck Feb 28 at 7:18
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Unit-root tests should always return the "non-stationarity result" in series with trend. Indeed, the possibility of simplification from ARIMA(p,d,q) to ARMA(p,q) is one of the main reasons that lead to performing the test in the first place

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  • $\begingroup$ would you be able to clarify/elaborate? I'm unsure of what you mean with regards to the question above. $\endgroup$ – Alexander Butler Feb 25 at 8:51

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