Talk:Cointegration

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A stock price and the dividend yield are not going to be cointegrated unless the dividend sequence is a stationary series. I would consider this to be quite unlikely from simple casual empiricism.

On the other hand, the basis on a stock futures contract would most likely be stationary. Feel free to revert the topic if you like but I think I'm right here.—Preceding unsigned comment added by 217.158.177.18 (talk) 18:17, 23 May 2005

Hi,

Thanks for contributing. You will acknowledge that the hypothesis of dividend->price connection could be (and has been) tested using cointegration techniques (whether or not they really are cointegrated). I will never revert an edit, especially a constructive one like this.

You may well have spotted an important error in communicating the idea, in that dividends and prices are not obviously cointegrated. However, I would say that futures and spot prices are so clearly cointegrated that we create another source of confusion; people could ask themselves, what the value of the method is (if it can only be used to prove relationships which are already enforced by arbitrage). I think the ideal example(s) would be less obvious than price-future, but more obvious than price-dividend.

What we really need is a case in which cointegration techniques proved their value against earlier econometrics, in an easy to describe way.

Any ideas?

Wragge 19:47, 2005 May 23 (UTC)

1st sentence: it's not a "technique" any more than correlation is a technique. it's a "property" ... where the difference between two non-stationary series may itself be stationary. Derex 22:26, 18 January 2006 (UTC)