Resource title

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

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Resource description

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.

Resource author

J├╝rgen Gaul, Erik Theissen

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25547

Resource license

Adapt according to the presented license agreement and reference the original author.