 Fractional cointegration and price discovery in Canadian commoditiesKe Xu, Kenneth Stewart and Zeyang Cao The North American Journal of Economics and Finance, 2022, vol. 63, issue C Abstract: Using as a unifying theme commodities important to the Canadian economy, recently developed tools are applied to studying price discovery in the spot and futures markets. For each commodity the fractionally cointegrated vector autoregression (FCVAR) model of Johansen and Neilsen is estimated and tested against the special case of the conventional cointegrated vector autoregression (CVAR). These models characterize the fundamental value of a commodity as the common stochastic trend shared by its cointegrated spot and futures prices, and so price discovery can be analyzed using the permanent-transitory decomposition of Gonzalo and Granger. Model forecasts are evaluated and compared using a distributional result due to Clark and West. The generalization to fractional cointegration is found to be statistically significant. However the economic significance of this generalization—in terms of forecast accuracy and the profitability of mean–variance dynamic trading strategies—is more fragile than may have been appreciated. Keywords: Canadian commodities; Price discovery; Fractional cointegration; Futures markets; Vector error correction model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:63:y:2022:i:c:s1062940822001358 DOI: 10.1016/j.najef.2022.101799 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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