Efficient markets do not cointegrate

Efficient markets do not cointegrate

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Article ID: iaor19961479
Country: Belgium
Volume: 36
Start Page Number: 143
End Page Number: 151
Publication Date: Sep 1994
Journal: Cahiers du Centre d'tudes de Recherche Oprationnelle
Authors:
Keywords: economics, finance & banking
Abstract:

This paper discusses the fact that, for many common situations involving processes which have an ARIMA representation, cointegration relationships cannot hold. In particular, efficient markets cannot cointegrate. As a main consequence, greater care should be taken both before using the existing cointegration tests-whose robustness, as known, is not very high-and, most importantly, before choosing the adequate model for the series at stake.

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