Testing for threshold cointegration and error correction: evidence in the petroleum futures market

Jeng Bau Lin and Chin Chia Liang

Applied Economics, 2010, vol. 42, issue 22, 2897-2907

Abstract: This article examines the existence of threshold cointegration between futures and spot prices for the Brent petroleum market. We then estimate the asymmetric error-correction specification utilizing the Momentum Threshold Autoregressive Consistent (M-TAR-C) approach particularly proposed by Enders and Siklos (2001). We find that, for the daily data over 2 January 2001 through 15 October 2006, the petroleum futures prices are cointegrated with the spot prices. This effectively confirms the expectations hypothesis and that asymmetric adjustments for the futures basis towards the long-run value display a negative basis from the long-run equilibrium level more persistently than a positive basis from that level. The empirical result suggests that short-run arbitrages manipulating buy-long (sell-short) futures contracts be profitable when a positive basis is weakening (a negative basis is strengthening).

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840801964716 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:42:y:2010:i:22:p:2897-2907

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840801964716

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().