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

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 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:	2012
Authors:	Gaul, Jürgen ; Theissen, Erik
Institutions:	Institut für Finanzmarktforschung, Wirtschafts- und Sozialwissenschaftliche Fakultät
Subject:	Futures Markets \| Cointegration \| Partially linear models \| Nonparametric methods

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Extent:	application/pdf
Series:	CFR Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 13-01
Classification:	C32 - Time-Series Models ; C14 - Semiparametric and Nonparametric Methods ; G13 - Contingent Pricing; Futures Pricing ; G14 - Information and Market Efficiency; Event Studies
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010984861