Cointegration and joint efficiency of international commodity markets |
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| Institution: | 1. Department of Economics, University of Cyprus, Nicosia, Cyprus;2. Department of Economics, University of Cyprus, PO Box 20537, 1678, Nicosia, Cyprus;3. Department of Economics, University of Cyprus, Nicosia, Cyprus;4. Economic Research Department, Union Bank of Switzerland, Zurich, Switzerland;1. School of Economics and Management, Northwest University, Xi an, 710127, China;2. School of Public Finance and Taxation, Inner Mongolia University of Finance and Economics, Hohhot, 010000, China;1. University of Calabria, Department of Economics, Statistics and Finance, I-87036 Rende (Cosenza), Italy;2. Center for Development Research (ZEF), University of Bonn, Department of Economic and Technological Change, D-53113 Bonn, Germany;3. Mercator Research Institute on Global Commons and Climate Change, D-10829 Berlin, Germany;4. University of Potsdam, Faculty of Economic and Social Sciences, D-14482 Potsdam, Germany;1. Faculty of Computer Science and Information Technology, University of Malaya, Kuala Lumpur, Malaysia;2. Center of Excellence in Information Assurance, King Saud University, Riyadh, Saudi Arabia;1. International Food Policy Research Institute, 2033 K Street, NW, Washington, DC 20006, USA;2. Michigan State University, 446 W. Circle Dr, Justin S Morrill Hall of Agriculture, East Lansing, MI 48824-1039, USA;1. University of St. Gallen, Institute for Operations Research and Computational Finance, Bodanstrasse. 6, CH-9000 St. Gallen, Switzerland;2. University of St. Gallen, Swiss Institute of Banking and Finance, Rosenbergstrasse 52, CH-9000 St. Gallen, Switzerland;3. NMBU School of Economics and Business, Christian Magnus Falsens Road 18, 1430 Aas, Norway;4. NTNU Business School, Norwegian University of Science and Technology, 7491 Trondheim, Norway;5. Research Centre for European Economic Research (ZEW), Switzerland |
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| Abstract: | This paper investigates the semi-strong efficiency hypothesis in the international commodity markets of four industrialized countries, using vector autoregression (VAR) and cointegration techniques. Efficiency in these markets requires the corresponding real exchange rates to be martingales with respect to any information set available in the public domain. In the context of a VAR consisting only of real exchange rates, we show that necessary and sufficient conditions for joint efficiency of all the markets under consideration amount to the VAR being of order one (Markovness) and non-cointegrated. On the contrary, in a VAR extended by other potentially “relevant” variables, such as the corresponding real interest rates, non-cointegration and Markovness are only sufficient conditions for the same commodity markets to be characterized as jointly efficient. We also suggest methods for efficiency testing in each individual market within a cointegrated VAR and, finally, we discuss possible long-run linkages among the real exchange rates and real interest rates in association with efficiency in the commodity markets. JEL Classification Number: F31 |
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