Integration in the English wheat market 1770-1820
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Date
2013-06Metadata
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- Discussion papers (SAM) [662]
Abstract
Cointegration analysis has been used widely to quantify market integration
through price arbitrage. We show that total price variability can be decomposed
into: (i) magnitude of price shocks; (ii) correlation of price shocks; (iii) between-period
arbitrage. All three measures depend upon data frequency, but between-period
arbitrage is most affected. We measure variation of these components
across time and space using English weekly wheat price data, 1770-1820. We show
that conclusions about arbitrage are sensitive to the precise form of
cointegration model used; different components behave differently; and different
factors – in terms of transport and information – explain behaviour of different
components. Previous analyses should be interpreted with caution.