Macroeconomic Factors in Oil Futures Markets

Management Science (2018)

28 Pages Posted: 7 Oct 2014 Last revised: 11 Jul 2018

See all articles by Davidson Heath

Davidson Heath

University of Utah - David Eccles School of Business

Date Written: November 6, 2017


This paper documents new evidence against perfect risk spanning in crude oil futures, and develops an affine futures pricing model that allows for unspanned macroeconomic factors. Compared to previous estimates, the oil spot premium is more volatile and strongly procyclical which suggests that previous models miss the majority of variation in oil risk premiums. The estimates reveal a dynamic two-way relationship between oil futures and economic activity: productivity shocks are associated with higher oil prices, while oil price shocks aff ect economic activity by lowering future consumption spending. Unspanned macro factors also a ffect the valuation of real options.

Keywords: commodities, futures, unspanned factors, affine models, real activity, real options

Suggested Citation

Heath, Davidson, Macroeconomic Factors in Oil Futures Markets (November 6, 2017). Management Science (2018), Available at SSRN: or

Davidson Heath (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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