IDEAS home Printed from https://ideas.repec.org/p/ags/quedwp/274653.html
   My bibliography  Save this paper

A fractionally cointegrated VAR model with deterministic trends and application to commodity futures markets

Author

Listed:
  • Dolatabadi, Sepideh
  • ßrregaard Nielsen, Morten
  • Xu, Ke

Abstract

We apply the fractionally cointegrated vector autoregressive (FCVAR) model to analyze the relationship between spot and futures prices in five commodity markets (aluminium, copper, lead, nickel, and zinc). To this end, we first extend the FCVAR model to accommodate de- terministic trends in the levels of the processes. The methodological contribution is to provide representation theory for the FCVAR model with deterministic trends, where we show that the presence of the deterministic trend in the process induces both restricted and unrestricted constant terms in the vector error correction model. The consequences for the cointegration rank test are also brie y discussed. In our empirical application we use the data from Figuerola- Ferretti and Gonzalo (2010), who conduct a similar analysis using the usual (non-fractional) cointegrated VAR model. The main conclusion from the empirical analysis is that, when using the FCVAR model, there is more support for the cointegration vector (1;-1)0 in the long-run equilibrium relationship between spot and futures prices, and hence less evidence of long-run backwardation, compared to the results from the non-fractional model. Specifically, we reject the hypothesis that the cointegration vector is (1;-1) using standard likelihood ratio tests only for the lead and nickel markets.

Suggested Citation

  • Dolatabadi, Sepideh & ßrregaard Nielsen, Morten & Xu, Ke, 2015. "A fractionally cointegrated VAR model with deterministic trends and application to commodity futures markets," Queen's Economics Department Working Papers 274653, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:274653
    DOI: 10.22004/ag.econ.274653
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/274653/files/qed_wp_1327.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.274653?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:quedwp:274653. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.