Threshold Autoregressive Modeling In Finance: The Price Differences Of Equivalent Assets
AbstractThreshold autoregressive (TAR) models condition the first moment of a time series on lagged information using a step-function-type nonlinear structure. TAR techniques are expected to be relevant in financial time-series modeling in situations where deviations of prices from equilibrium values depend on discrete transaction costs and where market regulators follow intervention rules based on threshold values of control variables. an important finance application is in modeling the difference in prices of equivalent assets in the presence of transaction costs. the focus of this paper is on motivating the use of TAR models in this context and on the statistical estimation and testing procedures. the procedures are illustrated by modeling the difference between the prices of an index futures contract and the equivalent underlying cash index. It is found that the hypothesis of linearity is conclusively rejected in favor of threshold nonlinearity and that the estimated thresholds are largely consistent with arbitrage-related transaction costs. Copyright 1994 Blackwell Publishers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Mathematical Finance.
Volume (Year): 4 (1994)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Theissen, Erik, 2011.
"Price discovery in spot and futures markets: A reconsideration,"
CFR Working Papers
09-17 [rev.], University of Cologne, Centre for Financial Research (CFR).
- Erik Theissen, 2012. "Price discovery in spot and futures markets: a reconsideration," The European Journal of Finance, Taylor & Francis Journals, vol. 18(10), pages 969-987, November.
- Theissen, Erik, 2009. "Price discovery in spot and futures markets: A reconsideration," CFS Working Paper Series 2009/27, Center for Financial Studies (CFS).
- Theissen, Erik, 2009. "Price discovery in spot and futures markets: A reconsideration," CFR Working Papers 09-17, University of Cologne, Centre for Financial Research (CFR).
- van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000.
"Smooth Transition Autoregressive Models - A Survey of Recent Developments,"
Working Paper Series in Economics and Finance
380, Stockholm School of Economics, revised 17 Jan 2001.
- Dick van Dijk & Timo Terasvirta & Philip Hans Franses, 2002. "Smooth Transition Autoregressive Models — A Survey Of Recent Developments," Econometric Reviews, Taylor & Francis Journals, vol. 21(1), pages 1-47.
- van Dijk, D.J.C. & Terasvirta, T. & Franses, Ph.H.B.F., 2000. "Smooth transition autoregressive models - A survey of recent developments," Econometric Institute Research Papers EI 2000-23/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Gaul, Jürgen & Theissen, Erik, 2008.
"A partially linear approach to modelling the dynamics of spot and futures prices,"
CFS Working Paper Series
2008/12, Center for Financial Studies (CFS).
- Gaul, Jürgen & Theissen, Erik, 2012. "A partially linear approach to modelling the dynamics of spot and futures prices," CFR Working Papers 13-01, University of Cologne, Centre for Financial Research (CFR).
- Pavlidis Efthymios G & Paya Ivan & Peel David A, 2010.
"Specifying Smooth Transition Regression Models in the Presence of Conditional Heteroskedasticity of Unknown Form,"
Studies in Nonlinear Dynamics & Econometrics,
De Gruyter, vol. 14(3), pages 1-40, May.
- E Pavlidis & I Paya & D Peel, 2009. "Specifying Smooth Transition Regression Models in the Presence of Conditional Heteroskedasticity of Unknown Form," Working Papers 599040, Lancaster University Management School, Economics Department.
- Conlin Lizieri & Steven Satchell & Elaine Worzala & Roberto Dacco', 1998. "Real Interest Regimes and Real Estate Performance: A Comparison of UK and US Markets," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 339-356.
- Chan, W.S. & Cheung, S.H., 2005. "A bivariate threshold time series model for analyzing Australian interest rates," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 68(5), pages 429-437.
- repec:ntu:ntugeo:vol2-iss1-14-042 is not listed on IDEAS
- Zhang, Qi & Cai, Charlie X. & Keasey, Kevin, 2013. "Market reaction to earnings news: A unified test of information risk and transaction costs," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 251-266.
- Tse, Yiuman, 2001. "Index arbitrage with heterogeneous investors: A smooth transition error correction analysis," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1829-1855, October.
- Canto, Bea & Kräussl, Roman, 2007. "Electronic trading systems and intraday non-linear dynamics: An examination of the FTSE 100 cash and futures returns," CFS Working Paper Series 2007/20, Center for Financial Studies (CFS).
- Li, Ming-Yuan Leon, 2008. "Clarifying the dynamics of the relationship between option and stock markets using the threshold vector error correction model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(3), pages 511-520.
- van Dijk, D.J.C. & Franses, Ph.H.B.F., 1997. "Nonlinear Error-Correction Models for Interest Rates in The Netherlands," Econometric Institute Research Papers EI 9704-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Geoffrey F. Loudon & Wing H. Watt & Pradeep K. Yadav, 2000. "An empirical analysis of alternative parametric ARCH models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 117-136.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.