Unit root test settings?

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Unit root test settings?

Postby arman555 » Sun May 13, 2018 8:03 pm

Hello people,

Please pardon my newbie question. My background is strongly technical.
I am trying to find cointegrated forex pairs. According my reading and research this is the step i follow....

1) check each series for stationary (ADF test).( Not sure of the setting here, level, first difference, 2nd difference)
2) using grenger method i use y = c(1) + c(2)*x equation.
3) export tge residuals in another series.
4) check residuals for stationarity again using ADF...

1) In both cases i am not sure which one to use Level, 1st difference , or 2nd difference.
2) Most test are not cointegrated at level but stationary at 1st level.. what does this mean? Should I be doing this and in what cases?
3) if anyone knows that how will i size my positions.

Thankyou in advance...!!

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