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Testing Cointegration for Czech Stock Market
[Testování kointegrace na českém akciovém trhu]

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  • Tran Van Quang

Abstract

Based on cointegration analysis of daily data of the most liquid Czech stock from September 1, 1997 to February 28, 2007, a long run equilibrium relationship was revealed to exist between prices of stocks of Komerční banka (KB), České energetické závody (CEZ) and Unipetrol (UNPE). Prices time series of these stocks have a unit root and are cointegrated. There is a unique combination of these stocks which is mean reverting and can be used to achieve statistical arbitrage. However, in order to exploit this possibility, a number of challenges need to be dealt with. Investors should take into account the speed of the mean reversion rate, the size of the variation and the stability of the out of sample behaviour of this combination of these stocks.

Suggested Citation

  • Tran Van Quang, 2007. "Testing Cointegration for Czech Stock Market [Testování kointegrace na českém akciovém trhu]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2007(4), pages 17-31.
    • Handle: RePEc:prg:jnlaop:v:2007:y:2007:i:4:id:70:p:17-31
    DOI: 10.18267/j.aop.70
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    References listed on IDEAS

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    1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    2. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-174, Summer.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    6. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Pinshi, Christian, 2020. "Rethinking error correction model in macroeconometric analysis : A relevant review," MPRA Paper 98202, University Library of Munich, Germany.
    2. PINSHI, Christian P., 2021. "Repenser le modèle à correction d’erreurs dans l’analyse macroéconométrique : Une revue [Rethinking the Error Correction Model in Macroeconometric Analysis: A Review]," MPRA Paper 106694, University Library of Munich, Germany.

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    More about this item

    Keywords

    unit root; cointegration; Czech stocks prices time series; mean reverting;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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