Time-Varying Spot and Futures Oil Price Dynamics
Guglielmo Maria Caporale
London South Bank University; Brunel University - Brunel Business School; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
John Cabot University; LUISS Guido Carli
National Institute of Statistics (ISTAT)
CESifo Working Paper Series No. 3015
We investigate the role of crude oil spot and futures prices in the process of price discovery by using a cost-of-carry model with an endogenous convenience yield and daily data over the period from January 1990 to December 2008. We provide evidence that futures markets play a more important role than spot markets in the case of contracts with shorter maturities, but the relative contribution of the two types of market turns out to be highly unstable, especially for the most deferred contracts. The implications of these results for hedging and forecasting crude oil spot prices are also discussed.
Number of Pages in PDF File: 34
Keywords: cointegration, oil market, futures prices, price discovery
JEL Classification: C32, C51, G13, G14working papers series
Date posted: April 21, 2010
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