Information in the Term Structure of WTI Crude Oil Futures

59 Pages Posted: 2 Mar 2020

See all articles by Don Bredin

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance

Conall O'Sullivan

University College Dublin (UCD) - Michael Smurfit Graduate School of Business

Simon Spencer

University College Dublin (UCD) - Department of Banking & Finance

Date Written: February 14, 2020

Abstract

Nelson-Siegel factors extracted from the term structure of WTI oil futures predict subsequent WTI holding period returns both in-sample and out-of-sample. This predictability is not diminished by augmenting with macroeconomic indicators or oil market specific predictors. The term structure based predictability is distinct from the predictability in macroe- conomic fundamentals. However, controlling for information in the term structure renders oil market specific fundamentals insignificant in predict- ing holding period returns, with the exception of lagged spot returns. We also find that the most significant predictor of holding period returns is a time-varying decay factor in the term structure model.

Suggested Citation

Bredin, Don and O'Sullivan, Conall and Spencer, Simon, Information in the Term Structure of WTI Crude Oil Futures (February 14, 2020). Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 20-2, Available at SSRN: https://ssrn.com/abstract=3547395 or http://dx.doi.org/10.2139/ssrn.3547395

Don Bredin (Contact Author)

University College Dublin (UCD) - Department of Banking & Finance ( email )

School of Business
Blackrock, Co. Dublin, 4
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff_bredin.html

Conall O'Sullivan

University College Dublin (UCD) - Michael Smurfit Graduate School of Business ( email )

Blackrock, Co. Dublin
Ireland
+353 1 716 8836 (Phone)
+353 1 283 5482 (Fax)

Simon Spencer

University College Dublin (UCD) - Department of Banking & Finance ( email )

Blackrock, Co. Dublin
Ireland

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