Is Double Trouble? How to Combine Cointegration Tests

This paper suggests a combination procedure to exploit the imperfect correlation of cointegration tests to develop a more powerful meta test. To exemplify, we combine Engle and Granger (1987) and Johansen (1988) tests. Either of these underlying tests can be more powerful than the other one depending on the nature of the data-generating process. The new meta test is at least as powerful as the more powerful one of the underlying tests irrespective of the very nature of the data generating process. At the same time, our new meta test avoids the arbitrary decision which test to use if single test results conflict. Moreover it avoids the size distortion inherent in separately applying multiple tests for cointegration to the same data set. We apply our test to 143 data sets from published cointegration studies. There, in one third of all cases single tests give conflicting results whereas our meta tests provides an unambiguous test decision.