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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 Remoundos
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 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 Modelling

ISSN

0264-9993

Publisher

Elsevier

Issue

3

Volume

28

Page range

1000-1008

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-07-03

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