Stochastic Trends and Cointegration in the Market for Equities
نویسندگان
چکیده
We used a no-arbitrage, cost-of-carry pricing model to examine whether equity spot and futures markets are cointegrated. A stock index and its futures price should be cointegrated if the cost of carry is stationary. Otherwise, the appropriate cointegrating relationship is trivariate. We found that the Standard and Poor’s 500 index, associated futures series, and interest rate are all nonstationary. We further found that the cointegrating relationship includes the index, futures price, and cost of carry. Our findings are consistent with the no-arbitrage pricing model and do not appear to be sensitive to the presence of structural breaks in the series. © 1999 Elsevier Science Inc.
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