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What is the intuition behind cointegration?

Although having a postgrad degree in mathematics, I haven't used any maths 'in anger' for quite a few years now, so I am quite rusty (actually, VERY rusty).

I am looking for a gentle introduction to cointegration, that will prepare me with the fundamentals/foundation before I start to read Market Models by Carol Alexander (which I bought a few years ago!).

Could someone suggest a link to such a simple introductory note. Preferably, one which does not make too much of an assumption on the mathematical background of the reader.

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  • $\begingroup$ This seems like something Google or Wikipedia should be able to answer. Is there something specific you're having trouble understanding? $\endgroup$ – chrisaycock Jan 31 '12 at 14:30
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I'm not sure this post will survive, but Wikipedia's treatment is fairly gentle.

http://en.wikipedia.org/wiki/Cointegration

Also, EP Chan did a simple paper on cointegration as well.

http://epchan.com/downloads/cointegration.pdf

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This book by Richard Harris is a great intro.

The book is short but informative and technically rigorous. As a primer, it's fine. For the advanced student or professional it's obviously lacking, but that's the definition of a primer. ECM and VECM are particularly well treated.

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