A partially linear approach to modelling the dynamics of spot and futures prices

Jürgen Gaul and Erik Theissen

No 2008/12, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: In this paper we consider the dynamics of spot and futures prices in the presence of arbitrage. We propose a partially linear error correction model where the adjustment coefficient is allowed to depend non-linearly on the lagged price difference. We estimate our model using data on the DAX index and the DAX futures contract. We find that the adjustment is indeed nonlinear. The linear alternative is rejected. The speed of price adjustment is increasing almost monotonically with the magnitude of the price difference.

Keywords: Futures Markets; Cointegrated Systems; Partially Linear Models; Nonparametric Methods (search for similar items in EconPapers)
JEL-codes: C14 C32 G13 G14 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A Partially Linear Approach to Modeling the Dynamics of Spot and Futures Prices (2015)
Working Paper: A partially linear approach to modelling the dynamics of spot and futures prices (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200812

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