Finance

Cointegration

Cointegration (Engle and Granger, 1987) is an econometric technique for testing the relationship between non-stationary time series variables. If two or more series each have a unit root, that is I(1), but a linear combination of them is stationary, I(0), then the series are said to be cointegrated.
For example, a stock market index and the price of its associated futures contract, whilst both following a random walk, will be in a long-run equilibrium and deviations from this equilibrium will be stationary.
Robert Engle and Clive Granger shared the 2003 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, the latter's portion due to his contribution to the development of cointegration.
Sewell (2006)

Books

• Amazon.com: Books Search Results: cointegration
• "Market Models: A Guide to Financial Data Analsis" by Carol Alexander, 2001, John Wiley & Sons, Ltd
• "Pairs Trading: Quantitative Methods and Analysis" by Ganapathy Vidyamurthy, 2004, John Wiley & Sons, Inc.

Top Ten Publications

1. ENGLE, R.F. and C.W.J. GRANGER, 1987. Cointegration and error correction: representation, estimation and testing. [Cited by 3830] (206.51/year)
2. PEDRONI, P., 2004. PANEL COINTEGRATION: ASYMPTOTIC AND FINITE SAMPLE PROPERTIES OF POOLED TIME SERIES TESTS WITH AN …. Econometric Theory. [Cited by 165] (106.71/year)
3. JOHANSEN, S. and K. JUSELIUS, 1990. Maximum likelihood estimation and infere nce on cointegration--with applications to the demand for …. [Cited by 1628] (104.72/year)
4. JOHANSEN, S. and K. JUSILIUS, 1991. Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. [Cited by 1392] (95.69/year)
5. HYLLEBERG, S., et al., 2001. Seasonal integration and cointegration. Causality, Integration And Cointegration, And Long Memory. [Cited by 367] (80.73/year)
6. MACKINNON, J.G., R.F. ENGLE and C.W.J. GRANGER, 1991. Critical values for cointegration tests. Long-Run Economic Relationships: Readings in Cointegration. [Cited by 960] (66.00/year)
7. MADDALA, G.S. and I.M. KIM, 1999. Unit Roots, Cointegration, and Structural Change. books.google.com. [Cited by 411] (62.78/year)
8. BANERJEE, A., et al., 1993. Co-Integration, Error-Correction, and the Econometric Analysis of Non-Stationary Data. ingentaconnect.com. [Cited by 591] (47.11/year)
9. OSTERWALD-LENUM, M., 1992. … of the asymptotic dis trib ution of the maximum likelihood cointegration rank test statistics.. [Cited by 620] (45.77/year)
10. GONZALO, J. and C.W.J. GRANGER, 2001. Estimation of Common Long-Memory Components in Cointegrated Systems. Harvard University Press Cambridge, MA, USA. [Cited by 195] (42.89/year)

Links

• About.com: Cointegration
• gummy stuff: cointegration
• Wikipedia: Cointegration

Bibliography

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• ENDERS, W., 1988. Arima and Cointegration Tests of PPP under Fixed and Flexible Exchange Rate Regimes. The Review of Economics and Statistics. [Cited by 58] (3.31/year)
• ENGLE, R.F. and C.W.J. GRANGER, 1987. Cointegration and error correction: representation, estimation and testing. [Cited by 3830] (206.51/year)
• ENGLE, R.F., et al., 1991. Long-run economic relationships: readings in cointegration. Oxford; New York: Oxford University Press. [Cited by 100] (6.87/year)
• ENGLE, R.F., et al., 1993. Seasonal cointegration: the Japanese consumption function. Journal of Econometrics. [Cited by 70] (5.58/year)
• ERICSSON, N.R., D.F. HENDRY and G.E. MIZON, 1998. Exogeneity, Cointegration, and Economic Policy Analysis. Journal of Business & Economic Statistics. [Cited by 61] (8.08/year)
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• FRANSES, P.H. and N. HALDRUP, 1993. The effects of additive outliers on tests for unit roots and cointegration. [Cited by 71] (5.66/year)
• GERDTHAM, U.G. and M. LöTHGREN, 2000. On stationarity and cointegration of international health expenditure and GDP. Journal of Health Economics. [Cited by 34] (6.13/year)
• GONZALO, J. and C.W.J. GRANGER, 2001. Estimation of Common Long-Memory Components in Cointegrated Systems. Harvard University Press Cambridge, MA, USA. [Cited by 195] (42.89/year)
• GREGORY, A. and B.E. HANSEN, 1992. Residual-based tests for cointegration in models with regime shifts. [Cited by 229] (16.90/year)
• HAFER, R.W. and D.W. JANSEN, 1991. The Demand for Money in the United States: Evidence from Cointegration Tests.. Journal of Money, Credit & Banking. [Cited by 61] (4.19/year)
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• HANSEN, H. and K. JUSELIUS, 2000. CATS in RATS: cointegration analysis of time series. [Cited by 165] (29.75/year)
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• HARRIS, F.H., et al., 1995. Cointegration, error correction, and price discovery on informationally linked security markets. Journal of Financial and Quantitative Analysis. [Cited by 39] (3.70/year)
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• HAUG, A.A., 1996. Tests for cointegration: a Monte Carlo comparison. Journal of Econometrics. [Cited by 72] (7.54/year)
• HENDRY, D.F. and K. JUSELIUS, 2001. Explaining Cointegration Analysis: Part II. Energy Journal. [Cited by 53] (11.66/year)
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• HORVATH, M.T.K. and M.W. WATSON, 1995. Testing for cointegration when some of the cointegrating vectors are prespecified. Econometric Theory. [Cited by 74] (7.02/year)
• HYLLEBERG, S., et al., 2001. Seasonal integration and cointegration. Causality, Integration And Cointegration, And Long Memory. [Cited by 367] (80.73/year)
• JOHANSEN, S. and E. SCHAUMBURG, 1997. Likelihood analysis of seasonal cointegration. [Cited by 52] (6.08/year)
• JOHANSEN, S. and K. JUSELIUS, 1990. Maximum likelihood estimation and infere nce on cointegration--with applications to the demand for …. [Cited by 1628] (104.72/year)
• JOHANSEN, S. and K. JUSELIUS, 1992. Testing structure hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK. [Cited by 417] (30.78/year)
• JOHANSEN, S. and K. JUSELIUS, 1994. The role of the constant and linear terms in cointegration analysis of nonstationary variables. Econometric Reviews. [Cited by 99] (8.57/year)
• JOHANSEN, S. and K. JUSILIUS, 1991. Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. [Cited by 1392] (95.69/year)
• JOHANSEN, S., 1991. Determination of cointegration rank in the presence of a linear trend. Helsinki: University of Helsinki. [Cited by 212] (14.57/year)
• JOHANSEN, S., 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian autoregressive models. Econometrica. [Cited by 76] (5.22/year)
• JOHANSEN, S., 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregression models. Econometrica. [Cited by 51] (3.51/year)
• JOHANSEN, S., 1991. Testing weak exogeneity and the order of cointegration in UK money demand data. Helsinki: University of Helsinki. [Cited by 108] (7.42/year)
• JOHANSEN, S., 1994. Cointegration in Partial Systems and the Efficiency of Single-Equation Analysis. [Cited by 169] (14.64/year)
• JOHANSEN, S., 1995. A statistical analysis of cointegration for I (2) variables. Econometric Theory. [Cited by 81] (7.68/year)
• JOHANSEN, S., 1995. … restrictions of linear equations with applications to simultaneous equations and cointegration. Journal of Econometrics. [Cited by 99] (9.39/year)
• KAO, C., 1999. Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics. [Cited by 167] (25.51/year)
• KAO, C., M.H. CHIANG and B. CHEN, 1999. International R & D Spillovers: An Application of Estimation and Inference in Panel Cointegration. Oxford Bulletin of Economics and Statistics. [Cited by 60] (9.17/year)
• KIM, Y., 1990. Purchasing Power Parity in the Long Run: A Cointegration Approach.. Journal of Money, Credit & Banking. [Cited by 78] (5.02/year)
• KREMERS, J.J.M., N.R. ERICSSON and J.J. DOLADO, 1992. The Power of cointegration tests. [Cited by 259] (19.12/year)
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• LEE, H.S., 1992. Maximum likelihood inference on cointegration and seasonal cointegration. Journal of Econometrics. [Cited by 55] (4.06/year)
• LEE, T.H. and Y. TSE, 1996. Cointegration tests with conditional heteroskedasticity. Journal of Econometrics. [Cited by 36] (3.77/year)
• MACKINNON, J.G., 1994. Approximate Asymptotic Distribution Functions for Unit-Root and Cointegration Tests. Journal of Business & Economic Statistics. [Cited by 87] (7.53/year)
• MACKINNON, J.G., 1995. Numerical distribution functions for unit root and cointegration tests. [Cited by 104] (9.86/year)
• MACKINNON, J.G., A.A. HAUG and L. MICHELIS, 1999. Numerical distribution functions of likelihood ratio tests for cointegration. Journal of Applied Econometrics. [Cited by 87] (13.29/year)
• MACKINNON, J.G., R.F. ENGLE and C.W.J. GRANGER, 1991. Critical values for cointegration tests. Long-Run Economic Relationships: Readings in Cointegration. [Cited by 960] (66.00/year)
• MADDALA, G.S. and I.M. KIM, 1999. Unit Roots, Cointegration, and Structural Change. books.google.com. [Cited by 411] (62.78/year)
• MARK, N.C. and D. SUL, 2003. Cointegration Vector Estimation by Panel DOLS and Long-run Money Demand*. Oxford Bulletin of Economics and Statistics. [Cited by 47] (18.46/year)
• MCCOSKEY, S. and C. KAO, 1998. A Residual-Based Test of the Null of Cointegration in Panel Data. Econometric Reviews. [Cited by 72] (9.54/year)
• MILLER, S.M., 1991. Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling. Journal of Money, Credit and Banking. [Cited by 63] (4.33/year)
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• OGAKI, M. and J.Y. PARK, 1998. A cointegration approach to estimating preference parameters. Journal of Econometrics. [Cited by 49] (6.49/year)
• OSTERWALD-LENUM, M., 1992. … of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics: Four …. Oxford Bulletin of Economics and Statistics. [Cited by 214] (15.80/year)
• OSTERWALD-LENUM, M., 1992. … of the asymptotic dis trib ution of the maximum likelihood cointegration rank test statistics.. [Cited by 620] (45.77/year)
• PARK, J.Y., 1990. Testing for Unit Roots and Cointegration by Variable Addition. Advances in Econometrics. [Cited by 69] (4.44/year)
• PEDRONI, P., 1999. Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics. [Cited by 236] (36.05/year)
• PEDRONI, P., 2004. PANEL COINTEGRATION: ASYMPTOTIC AND FINITE SAMPLE PROPERTIES OF POOLED TIME SERIES TESTS WITH AN …. Econometric Theory. [Cited by 165] (106.71/year)
• PESARAN, M.H. and Y. SHIN, 1996. Cointegration and speed of convergence to equilibrium. Journal of Econometrics. [Cited by 83] (8.69/year)
• PESARAN, M.H., Y. SHIN and S. STROM, 1999. An autoregressive distributed lag modelling approach to cointegration analysis. Econometrics and Economic Theory in the 20th Century: The …. [Cited by 176] (26.89/year)
• PHILLIPS, P.C.B. and S. OULIARIS, 1990. Asymptotic Properties of Residual Based Tests for Cointegration. Econometrica. [Cited by 342] (22.00/year)
• RAHBEK…, A., 1999. Trend stationarity in the I (2) cointegration model-An application to aggregate money holdings. Journal of Econometrics. [Cited by 56] (8.55/year)
• REIMERS, H.E., 1992. Comparisons of tests for multivariate cointegration. Statistical Papers. [Cited by 192] (14.17/year)
• RICHARDS, A.J., 1995. Comovements in national stock market returns: Evidence of predictability, but not cointegration. Journal of Monetary Economics. [Cited by 57] (5.40/year)
• SAIKKONEN, P., 1989. Asymptotically efficient estimation of cointegration regressions. Hki: University of Helsinki. [Cited by 186] (11.24/year)
• SEPHTON, P.S. and H.K. LARSEN, 1990. Tests of exchange market efficiency: fragile evidence from cointegration tests. [Cited by 51] (3.28/year)
• SHEA, G.S., 1992. … the Expectations Hypothesis of the Interest-Rate Term Structure: An Analysis of Cointegration …. Journal of Business & Economic Statistics. [Cited by 39] (2.88/year)
• SHIN, Y., 1994. A residual-based test of the null of cointegration against the alternative of no cointegration. Econometric Theory. [Cited by 117] (10.13/year)
• TAYLOR, M.P., 1988. An empirical examination of long-run purchasing power parity using cointegration techniques. Applied Economics. [Cited by 95] (5.41/year)
• WAHAB, M. and M. LASHGARI, 1993. Price Dynamics and Error Correction in Stock Index and Stock Index Futures Markets: A Cointegration …. Journal of Futures Markets. [Cited by 56] (4.46/year)
• WATSON, M.W., 1993. Vector autoregressions' and cointegration. [Cited by 105] (8.37/year)
• ZAPATA, H.O. and A.N. RAMBALDI, 1997. Monte Carlo Evidence on Cointegration and Causation. Oxford Bulletin of Economics and Statistics. [Cited by 45] (5.27/year)