What Explains Risk Premia in Crude Oil Futures?

40 Pages Posted: 17 Feb 2011  

Marko Melolinna

Bank of Finland - Monetary Policy

Date Written: February 17, 2011

Abstract

This paper studies the existence of risk premia in crude oil futures prices with simple regression and Bayesian VAR models. It also studies the importance of three main risk premia models in explaining and forecasting the risk premia in practice. Whilst the existence of the premia and the validity of the models can be established at certain time points, it turns out that the choice of sample period has a considerable effect on he results. Hence, the risk premia are highly timevarying. The study also establishes a model, based on speculative positions in the futures markets, which has some predictive power for future oil spot prices.

Keywords: forecasting, oil futures, risk premia, Bayesian VAR models

JEL Classification: C01, C32, C53

Suggested Citation

Melolinna, Marko, What Explains Risk Premia in Crude Oil Futures? (February 17, 2011). Bank of Finland Research Discussion Paper No. 2/2011. Available at SSRN: https://ssrn.com/abstract=1763231 or http://dx.doi.org/10.2139/ssrn.1763231

Marko Melolinna (Contact Author)

Bank of Finland - Monetary Policy ( email )

PO Box 160
00101 Helsinki
Finland

Register to save articles to
your library

Register

Paper statistics

Downloads
91
rank
255,815
Abstract Views
459
PlumX