Time-Varying Spot and Futures Oil Price Dynamics

Caporale, Guglielmo Maria; Ciferri, Davide; Girardi, Alessandro

doi:10.2139/ssrn.1592791

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Time-Varying Spot and Futures Oil Price Dynamics

CESifo Working Paper Series No. 3015

34 Pages Posted: 21 Apr 2010

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Davide Ciferri

John Cabot University; Luiss Guido Carli University

Alessandro Girardi

National Institute of Statistics (ISTAT)

There are 2 versions of this paper

Date Written: April 2010

Abstract

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.

Keywords: cointegration, oil market, futures prices, price discovery

JEL Classification: C32, C51, G13, G14

Suggested Citation: Suggested Citation

Caporale, Guglielmo Maria and Ciferri, Davide and Girardi, Alessandro, Time-Varying Spot and Futures Oil Price Dynamics (April 2010). CESifo Working Paper Series No. 3015, Available at SSRN: https://ssrn.com/abstract=1592791 or http://dx.doi.org/10.2139/ssrn.1592791