GLOBAL NATURAL GAS MARKET: REALITY OR EXPECTATION?

The natural gas market all over the world has been su¤ering tremendous changes for the past decades, not only because of market liberalization, but also due to industry restructuring and the strong expansion of lique\u85ed natural gas market (LNG) which brought the missing mechanism to achieve the integration of the regional markets, or, perhaps, the formation of a unique global market for natural gas. Previous related literature utilizes the Cointegration approach and Kalman Filter to test the Law of One Price hypothesis within the global natural gas market. In this article, we use Error Correction Model (ECM), Time Vary-ing Parameters Error Correction Model (TVP-ECM) and the Copula Analysis to examine the dependence between regional markets. Once veri\u85ed cointegration relationships between the natural gas price series, we estimate an ECM for each pair of prices and, using the Kalman Filter Approach, we ran a TVP-ECM as a way to model the short run dynamics of the pair of prices that presented some structural break. After that, we modeled the short run dependence with the Copula Analysis. This is an inovation of this article: the joint use of Cointegration Technique with Copulas. Basically, the Copulas are cumulative distributions functions (CDF) quite suitable to deal with dependence in multivariate data. The application of Copulas was motivated by the fact that neither the VECM nor the TVP-ECM was enough to account for all the de