Persistent cointegration and regime-sensitive market leadership: Evidence from international tobacco stocks

Abstract

This paper develops a data-driven framework combining fractional cointegration and structural break detection to examine long-run interdependence and market leadership among international tobacco equities. Using weekly data from May 2008 to October 2024 for Philip Morris Interna- tional, Altria, British American Tobacco, Imperial Brands, and Japan Tobacco, the study applies the Fractionally Cointegrated Vector Autoregressive (FCVAR) model of Johansen and Nielsen (2012) integrated with the Bai–Perron multiple-break methodology. The empirical analysis supports the presence of a single fractionally cointegrated equilibrium relationship characterized by long memory and regime-dependent persistence. Three model-implied regime shifts, which align closely in timing with major regulatory and ESG-related events, such as the 2012 WHO- FCTC harmonization, the 2015 expansion of FDA regulation, and the 2021 post-COVID ESG rotation—mark distinct equilibrium regimes in the global tobacco market. Within these regimes, adjustment dynamics indicate recurrent long-run leadership by Japan Tobacco, more heteroge- neous leadership patterns for Altria, and a clearly regime-dependent role for Philip Morris In- ternational. The integration of fractional modeling and break detection provides a robust data- science approach to disentangling persistence from structural change, offering new insights into leadership cycles, systemic risk, and sectoral resilience. These findings underscore how regulated and ESG-sensitive industries evolve through adaptive equilibrium processes, contrib- uting to the broader literature on long-memory econometrics and data-driven financial analytics.