Market Integration Dynamics and Asymptotic Price Convergence in Distribution

  1. Garcia-Hiernaux, Alfredo
  2. Guerrero Burbano, David
  3. McAleer, Michael
Revista:
Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Año de publicación: 2015

Número: 18

Páginas: 1-40

Tipo: Documento de Trabajo

DIALNET GOOGLE SCHOLAR lock_openDocta Complutense editor

Otras publicaciones en: Documentos de Trabajo (ICAE)

Resumen

This paper analyzes the market integration process of nominal prices, develops a model to analyze market integration, and presents a test of increasing market integration. A distinction is made between the economic concepts of price convergence in mean and variance. When both types of convergence occur, prices are said to converge in distribution. We present concepts and definitions related to the market integration process, link these to price convergence in distribution, argue that the Law of One Price is not a sufficient condition for market integration, and present a test of price convergence in distribution. We apply our methodology to two different cases, namely the integration of: i) the inland grains market in 19th Century USA, and ii) the Eurozone long-term bonds market after the euro entered circulation.

Referencias bibliográficas

  • Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Automatic Control, AC-19(6):716–723.
  • Bernard, A. B. and Durlauf, S. N. (1995). Convergence in international output. Journal of Applied Econometrics, 10:97–108.
  • Bernard, A. B. and Durlauf, S. N. (1996). Interpreting tests of the convergence hypothesis. Journal of Econometrics, 71:161–173.
  • Breusch, T. and Pagan, A. (1979). A simple test for heteroscedasticity and random coefficient variation. Econometrica, 47(5):1287–1294.
  • Brunt, L. and Cannon, E. (2014). Measuring integration in the English wheat market, 1770-1820: New methods, new answers. Explorations in Economic History, 52:111–130.
  • Casals, J., Sotoca, S., and Jerez, M. (2009). Modelling and forecasting time series sampled at different frequencies. Journal of Forecasting, 28(4):316–342.
  • Clark, G. (2015). Markets before economic growth: the grain market of medieval England. Cliometrica, 9(3):265–287.
  • Cournot, A. (1897). Researches into the mathematical principles of the theory of wealth, 1838. Translated by N.T. Bacon. The MacMillan Company, New York.
  • Cramér, H. (1946). Mathematical Models of Statistics, page 353. Uppsala: Almqvist and Wiksells.
  • Davis, R. A., Chen, M., and Dunsmuir, W. T. M. (1995). Inference for MA(1) processes with a root on or near the unit circle. Probability and Mathematical Statistics, 15:227– 242.
  • Deaton, A. S. (1999). Commodity prices and growth in africa. Journal of Economic Perspectives, 13(3):23–40.
  • Dobado, R., Garcia-Hiernaux, A., and Guerrero, D. E. (2012). The integration of grain markets in the Eighteenth Century: early rise of globalization in the West. The Journal of Economic History, 72:671–707.
  • Dobado, R., Garcia-Hiernaux, A., and Guerrero, D. E. (2015). West versus far east: early globalization and the great divergence. Cliometrica, 9(2):235–264.
  • Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2):383–417.
  • Hannan, E. J. and Quinn, B. G. (1979). The determination of the order of an autoregression. Journal of the Royal Statistical Association B, 41:713–723.
  • Hobijn, B. and Franses, P. H. (2000). Asymptotically perfect and relative convergence of productivity. Journal of Applied Econometrics, 15:59–81.
  • Ke, S. (2015). Domestic market integration and regional economic growth: China’s recent experience from 1995–2011. World Development, 66:588–597.
  • Lanne, M. and Lütkepohl, H. (2002). Unit root tests for time series with level shifts: a comparison of different proposals. Economics Letters, 75:109–114.
  • Lanne, M., Lütkepohl, H., and Saikkonen, P. (2002). Comparison of Unit Root tests for time series with level shifts. Journal of Time Series Analysis, 23(6):667–685.
  • Ljung, G. M. and Box, G. E. P. (1978). On a measure of lack of fit in time series models. Biometrika, 65:297–303.
  • Lo, A. (2004). Market efficiency from an evolutionary perspective. Journal of Portfolio Management, 30:15–29.
  • Lo, A. (2005). Reconciling efficient markets with behavioral finance: The Adaptive Markets Hypothesis. Journal of Investment Consulting, 7:21–24.
  • Quah, D. (1997). Empirics for growth and distribution: Stratification, polarization, and convergence clubs. Journal of Economic Growth, 2:27–59.
  • Saikkonen, P. and Lütkepohl, H. (2002). Testing for a unit root in a time series with a level shift at unknown time. Econometric Theory, 18:313–348.
  • Schäfer, A. and Steger, T. (2014). Journey into the unknown? Economic consequences of factor market integration under increasing returns to scale. Review of International Economics, 22(4):783–807.
  • Shin, D. and Fuller, W. (1998). Unit-root tests based on unconditional maximum likelihood estimation for the autoregressive moving average. Journal of Time Series Analysis, 19:591–599.
  • Shiue, C. H. and Keller, W. (2007). Markets in china and europe on the eve of the industrial revolution. The American Economic Review, 97(4):1189–1216.
  • Stigler, G. J. and Sherwin, R. A. (1985). The extent of the market. Journal of Law and Economics, 28(3):555–585.
  • Treadway, A. B. (2009). Theory of the extent of the market. SSRNeLibrary: http://ssrn.com/abstract=1372165.
Fuente de los datos: Dialnet