Trends and Contagion in WTI and Brent Crude Oil Spot and Futures Markets - The Role of OPEC in the last Decade
29 Pages Posted: 13 Oct 2018 Last revised: 12 Aug 2019
Date Written: September 21, 2018
This article examines the interconnectedness of WTI and Brent prices on different resolutions of price movements. Firstly, within a multivariate BEKK framework we identify high but volatile correlations with recurring highs around 0.8 and multiple periods of decoupling. OPEC meetings increase the correlation in the short run. Secondly, linear l1-trends reveal that long-term movements of WTI and Brent are driven by the same dynamics, confirming the `one great pool' hypothesis. OPEC meetings have only little impact on long-term price trends. Thirdly, we find leading effects of WTI over Brent by short-term trends of several days, especially in a negative direction. These trends have an asymmetrical effect on volatility; negative trends cause a stronger increase than positive trends. These findings are of interest to policy makers as well as hedging strategies of crude oil portfolios and provide insight into long-term movements of crude prices.
Keywords: Correlation, l1-trends, Leading Effects, OPEC, Volatility Spillover
JEL Classification: C54, O13, Q43
Suggested Citation: Suggested Citation