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Fractional cointegration of voting and non-voting shares

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  • Ingolf Dittmann

Abstract

Voting and non-voting shares of ten German companies are analysed for fractional cointegration. It turns out that seven pairs of price series are fractionally cointegrated. The estimated long-memory parameter of the equilibrium errors lies between 0.5 and 0.8. If two stocks are fractionally cointegrated, future returns of at least one of the stocks can be predicted by past prices. This contradicts the weak form of the efficient market hypothesis. A simple trading strategy is proposed and analysed; it leads to considerable excess returns in two out-of-sample evaluations.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 11 (2001)
Issue (Month): 3 ()
Pages: 321-332

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Handle: RePEc:taf:apfiec:v:11:y:2001:i:3:p:321-332

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  1. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  2. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 73(1), pages 5-59, July.
  3. Michael Dueker & Richard Startz, 1998. "Maximum-Likelihood Estimation Of Fractional Cointegration With An Application To U.S. And Canadian Bond Rates," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 420-426, August.
  4. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, American Finance Association, vol. 46(5), pages 1575-617, December.
  5. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  6. Baillie, Richard T & Bollerslev, Tim, 1994. " Cointegration, Fractional Cointegration, and Exchange Rate Dynamics," Journal of Finance, American Finance Association, American Finance Association, vol. 49(2), pages 737-45, June.
  7. Cheung, Yin-Wong & Lai, Kon S., 1997. "Bandwidth Selection, Prewhitening, and the Power of the Phillips-Perron Test," Econometric Theory, Cambridge University Press, vol. 13(05), pages 679-691, October.
  8. Cerchi, Marlene & Havenner, Arthur, 1988. "Cointegration and stock prices : The random walk on wall street revisited," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 333-346.
  9. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
  10. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(1), pages 103-12, January.
  11. Dittmann, Ingolf, 1998. "Residual-based tests for fractional cointegration: A Monte Carlo study," Technical Reports 1998,09, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
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Cited by:
  1. Jörg Breitung & Christian Wulff, 2001. "Non-linear Error Correction and the Efficient Market Hypothesis: The Case of German Dual-Class Shares," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 2(4), pages 419-434, November.
  2. Kellard, Neil & Dunis, Christian & Sarantis, Nicholas, 2010. "Foreign exchange, fractional cointegration and the implied-realized volatility relation," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 882-891, April.
  3. Marcel Aloy & Mohamed Boutahar & Karine Gente & Anne Peguin-Feissolle, 2010. "Fractional integration and cointegration in stock prices and exchange rates," Working Papers halshs-00536140, HAL.
  4. Kellard, Neil & Sarantis, Nicholas, 2008. "Can exchange rate volatility explain persistence in the forward premium?," Journal of Empirical Finance, Elsevier, Elsevier, vol. 15(4), pages 714-728, September.
  5. Krämer, Walter & Marmol, Francesc, 1998. "The power of residual-based tests for cointegration when residuals are fractionally integrated," Technical Reports 1998,42, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  6. repec:ebl:ecbull:v:30:y:2010:i:1:p:115-129 is not listed on IDEAS

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