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Macro factors in oil futures returns

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  • Yannick Le Pen
  • Benoît Sévi

Abstract

Abstract. We investigate the macro factors that can explain the monthly oil futures return for the NYMEX WTI futures contract for the time period 1993:11 to 2010:03. We build a new database of 187 real and nominal macroeconomic variables from developed and emerging countries and resort to the large factor approximate model to extract 9 factors from this dataset. We then regress crude oil return on several combinations of these factors. Our best model explains around 38% of the variability of oil futures return. More interestingly, the factor which has the largest influence on crude oil price is related to real variables from emerging countries. This result confirms the latest finding in the literature that the recent evolution in oil price is attributable to change in supply and demand conditions and not to the large increase in trading activity from speculators

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Bibliographic Info

Article provided by CEPII research center in its journal International Economics/Economie Internationale.

Volume (Year): (2011)
Issue (Month): 126-127 ()
Pages: 13-38

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Handle: RePEc:cii:cepiei:2011-q2-3-126-127-2

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Keywords: Crude Oil Futures; Large Approximate Factor Models; Macro Determinants;

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Cited by:
  1. Sévi, Benoît & Chevallier, Julien, 2013. "A Fear Index to Predict Oil Futures Returns," Economics Papers from University Paris Dauphine 123456789/11714, Paris Dauphine University.

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