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Testing for adjustment costs and regime shifts in BRENT crude futures market
journal contribution
posted on 2023-06-08, 12:01 authored by Emmanuel Mamatzakis, P RemoundosThis paper, using a threshold vector error-correction (TVECM) model, examines whether BRENT crude spot and futures oil prices are cointegrated. By employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various market imperfections. TVECM model is applied on daily spot and futures oil prices covering the period 1990–2009. The hypothesis we test is to what extent BRENT crude is indeed an integrated oil market in terms of threshold effects and adjustment costs. Our findings support that market follows a gradual integration path. We find that BRENT crude spot and futures are cointegrated, though two regimes are clearly identified. This implies that a threshold exists and it is indeed significant. Adjustment costs in the error correction are present, and they are valid at the typical regime that is the dominant, and as a result should not be ignored.
History
Publication status
- Published
Journal
Economic ModellingISSN
0264-9993Publisher
ElsevierExternal DOI
Issue
3Volume
28Page range
1000-1008Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2012-07-03Usage metrics
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