TITLE:
A Co-Integration Analysis of the Interdependencies between Crude Oil and Distillate Fuel Prices
AUTHORS:
Jane Aduda, Patrick Weke, Philip Ngare
KEYWORDS:
Co-Integration, Futures and Spot Prices, Granger-Causality, ECM, VECM, Volatility Spill-Over, Johansen’s Test, Engle-Granger Test
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.8 No.2,
May
31,
2018
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.