Weak form efficiency tests and the NYMEX 321 crack spread: Applications of cointegration theory.
Item
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Title
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Weak form efficiency tests and the NYMEX 321 crack spread: Applications of cointegration theory.
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Identifier
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AAI9108123
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identifier
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9108123
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Creator
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Jones, Nevin Ronald.
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Contributor
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Adviser: Ronald Anderson
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Date
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1990
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General | Economics, Finance
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Abstract
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The past several years have witnessed a veritable avalanche of theoretical papers dealing with the question of the weak form efficiency properties of a variety of asset markets including those for housing, Treasury Bills, stocks, and more recently oil futures.;This study is part of the same broad genre and specifically fixes upon the energy futures market as represented by the New York Mercantile Exchange (NYMEX) and its 321 crack spread. The essential objective of our focus is to provide evidence concerning the theoretical adequacy of the Samuelsonian Martingale Model as a reasonable characterization of the behavior of futures prices in the NYMEX energy complex.;In the above regard, following the introduction of some background material on the NYMEX energy contracts we introduce a theoretical model of the generalized crack spread and thus establish the relevant theoretical underpinnings of the 321 crack spread. Next we apply standard regression techniques to the price series in the individual markets to ascertain their stochastic properties. Applying Dickey-Fuller econometric techniques to the results of these standard regressions reveal that the individual markets are weak form efficient. As a refinement, given the presence of contemporaneous correlation in the cross sectional error terms, we model the individual price series using covariance and error components analysis and again cannot reject the finding that these markets are weak form efficient.;Finally, we introduce a framework of analysis based upon the theory of cointegrated processes and Error Correction Modeling (ECM) and are able to establish in fifty percent (50%) of the cases studied, clear evidence of weak form inefficiency and by implication, opportunities for surplus profits to be successfully speculated away.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
