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

Gaul, Jürgen; Theissen, Erik

Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/74675

Title:

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

Authors:

Gaul, Jürgen
Theissen, Erik

Year of Publication:

2012

Series/Report no.:

CFR Working Paper No. 13-01

Publisher:

University of Cologne, Centre for Financial Research (CFR), Cologne

Abstract:

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.

Subjects:

Futures Markets
Cointegration
Partially linear models
Nonparametric methods

JEL:

C32
C14
G13
G14

Document Type:

Working Paper

Appears in Collections:

CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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