[R-SIG-Finance] statistical remedy needed

[Arun Kumar Saha]

Hi tonyp, I have been following your thread from it's starting,
however the answers replied by my friends there could not convince me
greatly (probably I could not understand them properly!). For example
Andy said "One easy way may be remove autocorrelation first for both
series; then work on the residual series". In this case, the residual
series will trivially have zero mean in either case. So probably we
could not make any meaningful test (please correct me if I am wrong.)

However my suggestion is to think this problem from bivariate VAR
prospective. Assuming you observativations are stationary but
autocorrelated, you can easily assume those observations as
realization for some Stable VAR process. You can consider following
form of that stable VAR process:

(yt - mu) = A1(y[t-1] - mu) + A2(y[t-2] - mu) +... + error

here yt and mu both vector with length 2. Then you can construct a
valid test on mu1 = mu2 under suitable alternatives.

Seeking other comments on this approach.

Thanks and regards,
_____________________________________________________

Arun Kumar Saha, FRM
QUANTITATIVE RISK AND HEDGE CONSULTING SPECIALIST
Visit me at: http://in.linkedin.com/in/ArunFRM