Advanced Search
MyIDEAS: Login to save this paper or follow this series

A partially linear approach to modelling the dynamics of spot and futures prices

Contents:

Author Info

  • Gaul, Jürgen
  • Theissen, Erik

Abstract

This paper considers the dynamics of spot and futures prices in the presence of arbitrage. A partially linear error correction model is proposed where the adjustment coefficient is allowed to depend non-linearly on the lagged price difference. The model is estimated using data on the DAX index and the DAX futures contract. We find that the adjustment is indeed nonlinear. The linear alternative is rejected. The speed of price adjustment is increasing almost monotonically with the magnitude of the price difference. --

Download Info

If 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.
File URL: http://econstor.eu/bitstream/10419/74675/1/748718885.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 13-01.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:zbw:cfrwps:1301

Contact details of provider:
Postal: Albertus Magnus Platz, 50923 Köln
Phone: 0221 / 470 5607
Fax: 0221 / 470 5179
Email:
Web page: http://cfr-cologne.de/english/version06/html/home.php
More information through EDIRC

Related research

Keywords: Futures Markets; Cointegration; Partially linear models; Nonparametric methods;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John Xu Zheng, 1996. "A consistent test of functional form via nonparametric estimation techniques," Journal of Econometrics, Elsevier, Elsevier, vol. 75(2), pages 263-289, December.
  2. McDonald, Robert L, 2001. "Cross-Border Investing with Tax Arbitrage: The Case of German Dividend Tax Credits," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 14(3), pages 617-57.
  3. Theissen, Erik, 2002. "Price discovery in floor and screen trading systems," Journal of Empirical Finance, Elsevier, Elsevier, vol. 9(4), pages 455-474, November.
  4. Pradeep K. Yadav & Peter F. Pope & Krishna Paudyal, 1994. "Threshold Autoregressive Modeling In Finance: The Price Differences Of Equivalent Assets," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 4(2), pages 205-221.
  5. Martens, M. & Kofman, P. & Vorst, T.C.F., 1995. "A Threshold Error Correction Model for Intraday Futures and Index Returns," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 14/95, Monash University, Department of Econometrics and Business Statistics.
  6. Richard Roll & Eduardo Schwartz & Avanidhar Subrahmanyam, 2007. "Liquidity and the Law of One Price: The Case of the Futures-Cash Basis," Journal of Finance, American Finance Association, American Finance Association, vol. 62(5), pages 2201-2234, October.
  7. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 931-54, July.
  8. Li, Q. & Wang, Suojin, 1998. "A simple consistent bootstrap test for a parametric regression function," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 145-165, August.
  9. Tse, Yiuman, 2001. "Index arbitrage with heterogeneous investors: A smooth transition error correction analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(10), pages 1829-1855, October.
  10. Stoll, Hans R. & Whaley, Robert E., 1990. "The Dynamics of Stock Index and Stock Index Futures Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 25(04), pages 441-468, December.
  11. G. Geoffrey Booth & Ji-Chai Lin & Teppo Martikainen & Yiuman Tse, 2002. "Trading and Pricing in Upstairs and Downstairs Stock Markets," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(4), pages 1111-1135.
  12. Gerald P. Dwyer, Jr. & Peter Locke & Wei Yu, 1995. "Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash," Working Paper, Federal Reserve Bank of Atlanta 95-17, Federal Reserve Bank of Atlanta.
  13. Nick Taylor & Dick van Dijk & Philip Hans Franses & André Lucas, 1999. "SETS, Arbitrage Activity, and Stock Price Dynamics," Tinbergen Institute Discussion Papers 99-003/4, Tinbergen Institute.
  14. Hansen, Bruce E. & Seo, Byeongseon, 2002. "Testing for two-regime threshold cointegration in vector error-correction models," Journal of Econometrics, Elsevier, Elsevier, vol. 110(2), pages 293-318, October.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  16. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  17. Harris, Frederick H. deB. & McInish, Thomas H. & Wood, Robert A., 2002. "Common factor components versus information shares: a reply," Journal of Financial Markets, Elsevier, Elsevier, vol. 5(3), pages 341-348, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:cfrwps:1301. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

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.