The Nexus between Natural Gas Spot and Futures Prices at NYMEX: Do Weather Shocks and Non-Linear Causality in Low Frequencies Matter?
FCN Working Paper No. 17/2012 (revised September 2013)
31 Pages Posted: 21 Mar 2013 Last revised: 4 Sep 2013
Date Written: December 1, 2012
The existence of non-linear dynamics in the prices of financial commodities is an endemic feature and one of the most fundamental stylized facts in the literature. This study, conditioning on weather shocks, investigates the nature of the existing predictive power between natural gas spot and futures prices with one-month maturity at the NYMEX market. By implementing successively, before and after a first-moment filtering, a frequency domain causality test [Breitung J., Candelon B., 2006. Testing for short- and long-run causality: a frequency domain approach. Journal of Econometrics 132, 363-378], we corroborated a unidirectional non-linear forecasting ability in low frequencies that runs from the short maturity futures market towards the spot market.
Keywords: Natural gas, Spot and futures markets, Frequency domain causality
JEL Classification: C14, C58, G14, G15
Suggested Citation: Suggested Citation