| Author: | Brenner, R. Kroner, K. |
| Title: | Arbitrage, cointegration, and testing the unbiasedness hypothesis in financial markets |
| Journal: | Journal of Financial and Quantitative Analysis
1995 : MAR, VOL. 30:1, p. 23-42 |
| Index terms: | ARBITRAGE COINTEGRATION MARKETS |
| Language: | eng |
| Abstract: | The authors use a no-arbitrage, cost-of-carry asset pricing model to show that the existence of co-integration between spot and forward (futures) prices depends on the time-series properties of the cost-of-carry. The authors argue that the conditions for cointegration are more likely to hold in currency markets than in commodity markets, explaining many of the empirical results in the literature. The authors also use this model to demonstrate why the forward rate forecast error, the basis, and the forward premium are serially correlated, and to develop econometric tests of the "unbiasedness hypothesis" in various financial markets. |
SCIMA