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

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.

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Year of publication:	2008
Authors:	Gaul, Jürgen ; Theissen, Erik
Publisher:	Frankfurt a. M. : Goethe University Frankfurt, Center for Financial Studies (CFS)
Subject:	Börsenkurs \| Aktienindex \| Index-Futures \| Arbitragegeschäft \| Kointegration \| Partial-Least-Squares-Modell \| Nichtlineares Verfahren \| Schätzung \| Theorie \| Deutschland \| Futures Markets \| Cointegrated Systems \| Partially Linear Models \| Nonparametric Methods

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Series:	CFS Working Paper ; 2008/12
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	577547305 [GVK] hdl:10419/25547 [Handle] RePEc:zbw:cfswop:200812 [RePEc]
Classification:	C32 - Time-Series Models ; C14 - Semiparametric and Nonparametric Methods ; G13 - Contingent Pricing; Futures Pricing ; G14 - Information and Market Efficiency; Event Studies
Source:	EconStor

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010298395