Mamatzakis, E and Remoundos, P (2010): Threshold Cointegration in BRENT crude futures market.
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This paper, using a threshold vector error-correction (TVECM) model, examines whether BRENT crude spot and futures oil prices are cointegrated. By employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various market imperfections. TVECM model is applied on daily spot and futures oil prices covering the period 1990-2009. The hypothesis we test is to what extent BRENT crude is indeed an integrated oil market in terms of threshold effects and adjustment costs. Our findings support that market follows a gradual integration path. We find that BRENT crude spot and futures are cointegrated, though two regimes are clearly identified. This implies that a threshold exists and it is indeed significant. Adjustment costs in the error correction are present, and they are valid at the typical regime that is the dominant, and as a result should not be ignored.
|Item Type:||MPRA Paper|
|Original Title:||Threshold Cointegration in BRENT crude futures market|
|Keywords:||Threshold Cointegration, BRENT crude futures, Non-normality, ML Estimation.|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods; Simulation Methods
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E27 - Forecasting and Simulation: Models and Applications
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
|Depositing User:||emmanuel c mamatzakis|
|Date Deposited:||14. Jan 2010 15:59|
|Last Modified:||12. Feb 2013 01:29|
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