in the case of two variables, we compute the OLS for a) y = a x, and b) x = a' y and choose the one with the lowest CADF score?
so if I were to generalise, with a portfolio consisting of many assets, I'd run the CADF test n times, and rank them?
thanks
Hello Alex,
To do this for a portfolio of many assets the recommended test is the Johansen test. It is much more efficient than CADF and gives the same optimal results irrespective of the order of the assets.