In this paper we apply the recently developed fractionally cointegrated vector autoregressive (FCVAR) model to analyze price discovery in the spot and futures markets for five non-ferrous metals (aluminium, copper, lead, nickel, and zinc). The FCVAR model allows for long memory (fractional...

This paper considers the dynamics of spot and futures prices in the presence of arbitrage. A partially linear error correction model is proposed where the adjustment coefficient is allowed to depend non-linearly on the lagged price difference. The model is estimated using data on the DAX index...

This paper examines the impact of foreign participation in Korean Treasury Bond (KTB) futures and its role in price discovery for KTBs, using daily transactions data from the over-the-counter market for KTBs and from the Korea Exchange for the futures. Our analysis suggests that foreign trading...

I develop a noisy rational expectations equilibrium model with a continuum of states and a full set of options that render the market complete. I show a major difference in equilibrium behaviour between models with constant absolute risk aversion (CARA) and non-CARA preferences. First, when...

We examine whether the option market leads the stock market with respect to positive in addition to negative price discovery. We document that out-of-themoney (OTM) option prices, which determine the Risk-Neutral Skewness (RNS) of the underlying stock return's distribution, can embed positive...

In this study, the informational efficiency of the European natural gas market is analyzed by empirically investigating price formation and arbitrage efficiency between spot and futures markets. Econometric approaches are specified that explicitly account for nonlinearities and the low...

The US and UK markets for natural gas are connected by arbitrage activity in the form of shifting trade volumes of liquefied natural gas (LNG). We empirically investigate the degree of integration between the US and the UK gas markets by using a threshold cointegration approach that is in...

We develop a model of illiquidity transmission from spot to futures markets that formalizes the derivative hedge theory of Cho and Engle (1999). The model shows that spot market illiquidity does not translate one to one to the futures market but, rather, interacts with price risk, liquidity...

The growth in variable renewable energy (vRES) and the need for flexibility in power systems go hand in hand. We study how vRES and other factors, namely the price of substitute fuels, power price volatility, structural breaks, and seasonality impact the hedgeable power spreads (profit margins)...

In prediction markets, investors trade assets whose values are contingent on the occurrence of future events, like election outcomes. Prediction market prices have been shown to be consistently accurate forecasts of these outcomes, but we don't know why. I formally illustrate an information...