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

Zouheir Mighri and Faysal Mansouri ()
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Faysal Mansouri: University of Sousse

Empirical Economics, 2016, vol. 51, issue 3, No 11, 1115-1149

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.

Keywords: Asymmetric price transmission; Threshold cointegration; Structural change; Asymmetric adjustment; Asymmetric error correction; Causality; Pairs trading rule (search for similar items in EconPapers)
JEL-codes: C13 C22 C32 C52 C53 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00181-015-1029-5

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