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

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 International, 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 heterogeneous leadership patterns for Altria, and a clearly regime-dependent role for Philip Morris International. 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, contributing to the broader literature on long-memory econometrics and data-driven financial analytics.