Study on the price co-movement among the Asia Pacific, European and Chinese coal markets – based on the empirical analysis of MS-VEC model

ABSTRACT

In this article, based on weekly data of the three major coal markets (the Asia Pacific, Europe and China) from March 2008 to November 2014, an empirical research on their mutual influence and price co-movement effect among the three major coal markets is conducted by using the Co-integration Theory, Granger Causality Test and markov switching-Vector Error Correction (MS-VEC) model. The conclusions are as follows. (1) There exists a long-term cointegration relationship and bidirectional causality relationship between coal prices at home and abroad, and the influences of foreign coal markets on the domestic coal markets are stronger than the influences of domestic coal markets on foreign coal markets, and thus the interaction between the two markets leads to asymmetric linkage effects. (2) Compared with the VEC model, the MS-VEC model can reflect the nonlinear feature of price co-movement effects. (3) There exists an inherent adjustment mechanism between domestic and foreign coal markets, i.e. the coal prices will be self-revised continuously until a long-term equilibrium state is achieved when a deviation from the equilibrium state occurs. (4) There exists a co-movement effect which varies with the change of regime among the three coal prices, and the self-maintenance is strong and the status transfer phenomenon is clear in different regimes.

KEYWORDS:

• Coal price
• co-integration theory
• co-movement effect
• Markov switching model

JEL CLASSIFICATION:

• C32
• C41
• P22

Acknowledgement

This research is financially supported by Program for the Top Young Academic Leaders of Higher Learning Institutions of Shanxi (TYAL) and by Program for the Philosophy and Social Sciences Research of Higher Learning Institutions of Shanxi (PSSR) [No. 2014314].

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This research is financially supported by Program for the Top Young Academic Leaders of Higher Learning Institutions of Shanxi (TYAL) and by Program for the Philosophy and Social Sciences Research of Higher Learning Institutions of Shanxi (PSSR) [No. 2014314].