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Do transaction costs prevent arbitrage in the market for crude oil? Evidence from a threshold autoregression

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  • J. Stevens

Abstract

Recent evidence suggests that transaction costs may prevent arbitrage in the market for crude oil. If these costs are significant, they could have serious implications for the value of the basis as a predictor of movement in the spot price.Given the importance of the basis within the existing literature, this article investigates the effect of transaction costs on its dynamics. Using a threshold autoregression model, transaction costs are found to increase the persistence of the basis in most periods, suggesting the absence of arbitrage.

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  • J. Stevens, 2015. "Do transaction costs prevent arbitrage in the market for crude oil? Evidence from a threshold autoregression," Applied Economics Letters, Taylor & Francis Journals, vol. 22(3), pages 169-172, February.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:3:p:169-172
    DOI: 10.1080/13504851.2014.931915
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    Cited by:

    1. Ters, Kristyna & Urban, Jörg, 2020. "Estimating unknown arbitrage costs: Evidence from a 3-regime threshold vector error correction model," Journal of Financial Markets, Elsevier, vol. 47(C).
    2. Kristyna Ters & Jörg Urban, 2018. "Estimating unknown arbitrage costs: evidence from a three-regime threshold vector error correction model," BIS Working Papers 689, Bank for International Settlements.

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