Cointegration, market integration, and market efficiency

This paper uses a standard dynamic general equilibrium asset-pricing model to study the relationship among the concepts of efficient markets, integrated markets, and cointegrated prices. Within this setting we show that these concepts are independent of one another and any zero, one, two, or three of these characteristics can emerge in equilibrium, depending upon taste, endowment, and technology parameters. In particular, the results of tests of cointegration among asset prices have no implications about market efficiency or market integration without additional restrictions on the economy or economies.