56 Pages Posted: 2 Mar 2007 Last revised: 13 Feb 2009
Date Written: December 4, 2008
We identify and explain a structural change in the relation between crude oil futures prices across contract maturities. As recently as 2001, near- and long-dated futures were priced as though traded in segmented markets. In 2002, however, the prices of one-year futures started to move more in sync with the price of the nearby contract. Since mid-2004, the prices of both the one-year-out and the two-year-out futures have been cointegrated with the nearby price. We link this transformation to changes in fundamentals, as well as to sea changes in the maturity structure and trader composition of futures market activity. In particular, we utilize a unique dataset of individual trader positions in exchange-traded crude oil options and futures to show that increased market activity by commodity swap dealers, and by hedge funds and other financial traders, has helped link crude oil futures prices at different maturities.
Keywords: Crude Oil Futures, Maturity, Segmentation, Cointegration, Trading Activity, Fundamentals
JEL Classification: G10, G13, L89
Suggested Citation: Suggested Citation
Buyuksahin, Bahattin and Haigh, Michael S. and Harris, Jeffrey H. and Overdahl, James A. and Robe, Michel A., Fundamentals, Trader Activity and Derivative Pricing (December 4, 2008). EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=966692 or http://dx.doi.org/10.2139/ssrn.966692