Title: Modelling nonlinear and fractionally cointegrated price discovery in commodity markets
Authors: Chi Wan Cheang - University of Southampton (United Kingdom) [presenting]
Abstract: A fractionally cointegrated vector autoregressive (FCVAR) model with nonlinear disequilibrium adjustment is developed. This property is relevant for the price discovery in commodity markets. In addition to the existence of long memory and normal state of contango or backwardation in the long run spot-futures equilibrium, the commodity spot and futures prices are shown to have nonlinear co-variation dynamics. It occurs that in some time periods the price disequilibrium is more persistence whereas in other periods the disequilibrium is correcting with a fast rate of adjustment. The model is applied to some data used previously to model price discovery in non ferrous metals markets in the UK using the cointegrated VAR model.