Size properties of cointegration tests in misspecified systems

The small sample size properties of three frequently used cointegration tests when a system has been misspecified are investigated. Specifically, the misspecification consists of one relevant variable being omitted from a system with one cointegrating vector. A Monte Carlo study shows that the Johansen (1991) trace test, adjusted by a simple finite sample correction, has the most robust behaviour when lag length in the test equations is chosen according to traditional information criteria.