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Asymmetric price transmission within the Argentinean stock market: an asymmetric threshold cointegration approach

Author

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  • Zouheir Mighri

    () (University of Sousse)

  • Faysal Mansouri

    () (University of Sousse)

Abstract

Abstract This study uses the threshold cointegration and asymmetric error correction models to examine the long-run asymmetric equilibrium relationships between individual prices and the general stock index in the Argentinean stock market. We find that only five shares become cointegrated with the general national stock index and show signs of asymmetric adjustment. Besides, unlike ALUA and GGAL shares, the threshold cointegration analysis reveals that, in the long-term, the BMA, EDN and APBR shares have a much faster reaction to negative deviations from long-term equilibrium than positive deviations. Furthermore, the error correction model discloses that, in the short-term, the adjustment speed of EDN-share is faster when the deviation from the long-run equilibrium is positive than when it is negative. Besides, it is found that the ALUA, BMA, GGAL and APBR shares have a much slower reaction to positive deviations from long-term equilibrium than negative deviations. Finally, a pairs trading rule, based on the estimated threshold cointegration model, shows the usefulness of our findings as it generates a significantly higher return than a naive buy-and-hold trading rule.

Suggested Citation

  • Zouheir Mighri & Faysal Mansouri, 2016. "Asymmetric price transmission within the Argentinean stock market: an asymmetric threshold cointegration approach," Empirical Economics, Springer, vol. 51(3), pages 1115-1149, November.
  • Handle: RePEc:spr:empeco:v:51:y:2016:i:3:d:10.1007_s00181-015-1029-5
    DOI: 10.1007/s00181-015-1029-5
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    More about this item

    Keywords

    Asymmetric price transmission; Threshold cointegration; Structural change; Asymmetric adjustment; Asymmetric error correction; Causality; Pairs trading rule;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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