Identification by full adjustment: evidence from the relationship between futures and spot prices
This paper proposes a test for orthogonality of the errors in a vector error-correction model (VECM) that focuses on the recursive ordering among the contemporaneously correlated errors. The test is based on the fact that when the frequency of the data is sufficiently low one of the variables in the long-run equilibrium relationship adjusts fully within the same period to its new equilibrium level. An empirical investigation of the relationship between spot and futures prices for commodities traded on the Amsterdam Exchanges and the Chicago Board of Trade reveals that the spot price adjusts fully to its new equilibrium level if the price-discovery function of the futures market works well. Copyright 2002, Oxford University Press.
Year of publication: |
2002
|
---|---|
Authors: | Kuiper, W. Erno ; Pennings, Joost M. E. |
Published in: |
European Review of Agricultural Economics. - European Association of Agricultural Economists - EAAE, ISSN 1464-3618. - Vol. 29.2002, 1, p. 67-84
|
Publisher: |
European Association of Agricultural Economists - EAAE |
Saved in:
Saved in favorites
Similar items by person
-
Time-varying hedge ratios : a principal-agent approach
Kuwornu, John K. M., (2005)
-
Agency problem and hedging in agri-food chains : model and application
Kuwornu, John K. M., (2009)
-
Kuwornu, John K. M., (2006)
- More ...