Testing for threshold cointegration and error correction: evidence in the petroleum futures market

$53.17 plus tax (Refund Policy)

Buy Article:

Abstract:

This article examines the existence of threshold cointegration between futures and spot prices for the Brent petroleum market. We then estimate the asymmetric error-correction specification utilizing the Momentum Threshold Autoregressive Consistent (M-TAR-C) approach particularly proposed by Enders and Siklos (2001). We find that, for the daily data over 2 January 2001 through 15 October 2006, the petroleum futures prices are cointegrated with the spot prices. This effectively confirms the expectations hypothesis and that asymmetric adjustments for the futures basis towards the long-run value display a negative basis from the long-run equilibrium level more persistently than a positive basis from that level. The empirical result suggests that short-run arbitrages manipulating buy-long (sell-short) futures contracts be profitable when a positive basis is weakening (a negative basis is strengthening).

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840801964716

Affiliations: Department of Business Administration, National Chung Hsing University, Taiwan, ROC

Publication date: September 1, 2010

More about this publication?
Related content

Share Content

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
X
Cookie Policy
ingentaconnect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more