Threshold Cointegration In BRENT Crude Futures Market
Source: Munich Personal Repec Archive
This paper, using a Threshold Vector Error-Correction (TVECM) Model, examines whether BRENT crude spot and futures oil prices are cointegrated. By employing this methodology the authors 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 they test is to what extent BRENT crude is indeed an integrated oil market in terms of threshold effects and adjustment costs. The findings support that market follows a gradual integration path.