Fractional cointegration of voting and non-voting shares

Ingolf Dittmann

Applied Financial Economics, 2001, vol. 11, issue 3, 321-332

Abstract: Voting and non-voting shares of ten German companies are analysed for fractional cointegration. It turns out that seven pairs of price series are fractionally cointegrated. The estimated long-memory parameter of the equilibrium errors lies between 0.5 and 0.8. If two stocks are fractionally cointegrated, future returns of at least one of the stocks can be predicted by past prices. This contradicts the weak form of the efficient market hypothesis. A simple trading strategy is proposed and analysed; it leads to considerable excess returns in two out-of-sample evaluations.

Date: 2001
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DOI: 10.1080/096031001300138726

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