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A Co-Integration Analysis of the Interdependencies between Crude Oil and Distillate Fuel Prices
Department of Statistics and Actuarial Sciences, Jomo Kenyatta university of Agriculture and Technology, Nairobi, Kenya
School of Mathematics, University of Nairobi, Nairobi, Kenya
School of Mathematics, University of Nairobi, Nairobi, Kenya
- 1 Department of Statistics and Actuarial Sciences, Jomo Kenyatta university of Agriculture and Technology, Nairobi, Kenya
- 2 School of Mathematics, University of Nairobi, Nairobi, Kenya
- 3 School of Mathematics, University of Nairobi, Nairobi, Kenya
Journal of Mathematical Finance·Volume 08 (2018)·Pages 478–496·Published 29 March 2018·DOI10.4236/jmf.2018.82030
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Abstract
The co-evolution and co-movement of financial time series are of utmost importance in contemporary finance, especially when considering the joint behaviour of asset price realizations. The ability to model interdependencies and volatility spill-over effects introduces interesting dimensions in finance. This paper explores co-integrating relationships between crude oil and distillate fuel prices. Existence of multivariate co-integrating relations and bidirectional Granger-Causality is established among the series. It is also established that even after fitting a full VECM, the residuals are not necessarily multivariate normal suggesting the noise could as well be multivariate GARCH.
KeywordsCo-IntegrationFutures and Spot PricesGranger-CausalityECMVECMVolatility Spill-OverJohansen’s TestEngle-Granger Test
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