Acta Oeconomica Pragensia 2007, 15(4):17-31 | DOI: 10.18267/j.aop.70

Testing Cointegration for Czech Stock Market

Tran Van Quang
Ing. Tran Van Quang - research fellow; Center for Research in Economic Dynamics and Econometrics, Faculty of Finance and Accounting, University of Economics, Prague, nám. W. Churchilla 4, 130 67 Prague 3, Czech Republic, tran@vse.cz

Based on cointegration analysis of daily data of the most liquid Czech stock from September 1, 1997 to February 28, 2007, a long run equilibrium relationship was revealed to exist between prices of stocks of Komerční banka (KB), České energetické závody (CEZ) and Unipetrol (UNPE). Prices time series of these stocks have a unit root and are cointegrated. There is a unique combination of these stocks which is mean reverting and can be used to achieve statistical arbitrage. However, in order to exploit this possibility, a number of challenges need to be dealt with. Investors should take into account the speed of the mean reversion rate, the size of the variation and the stability of the out of sample behaviour of this combination of these stocks.

Keywords: unit root, cointegration, Czech stocks prices time series, mean reverting
JEL classification: C32, E32

Published: August 1, 2007  Show citation

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Van Quang, T. (2007). Testing Cointegration for Czech Stock Market. Acta Oeconomica Pragensia, 15(4), 17-31. doi: 10.18267/j.aop.70
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