This article argues that whatever concerns one might have about the id
entification of a cointegrating relationship with market inefficiency,
cointegration tests can still be usefully employed to investigate the
predictability of asset prices. We examine the case of n-dimensional
systems, and show that the standard assumption made in the literature
that cointegration implies predictability of all n asset prices is not
valid. In the presence of r cointegrating vectors, only r prices are
predictable, and standard Wald or LM tests carried out within Johansen
's Maximum Likelihood (ML) framework can be used to establish for whic
h prices unpredictability does not hold. Similarly, one can distinguis
h between (joint) unpredictability in the short- and long-run when ass
et prices are driven by fundamentals. (C) 1998 Elsevier Science Ltd. A
ll rights reserved.