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Zero-non-zero Patterned Vector Error Correction Modelling for I(2) Cointegrated Time-Series with Applications in Testing PPP and Stock Market Relationships

Penm, Jack H.W; Brailsford, Tim; Terrell, R.D


Vector error-correction models (VECMs) have become increasingly popular in their applications to financial markets. Standard VECM models assume that the cointegrating vectors are of full rank such that they contain no zero elements. However, applications of VECM models to financial market data have revealed that zero entries are indeed possible. The existence of zero entries has not been fully discussed in cointegration theory. In such cases, the use of standard VECM models may lead to...[Show more]

CollectionsANU Research Publications
Type: Working/Technical Paper
Source: Research in Finance
DOI: 10.1016/S0196-3821(05)22011-7


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