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Can the dynamics of the term structure of petroleum futures be forecasted? Evidence from major markets

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  • Chantziara, Thalia
  • Skiadopoulos, George

Abstract

We investigate whether the daily evolution of the term structure of petroleum futures can be forecasted. To this end, the principal components analysis is employed. The retained principal components describe the dynamics of the term structure of futures prices parsimoniously and are used to forecast the subsequent daily changes of futures prices. Data on the New York Mercantile Exchange (NYMEX) crude oil, heating oil, gasoline, and the International Petroleum Exchange (IPE) crude oil futures are used. We find that the retained principal components have small forecasting power both in-sample and out-of-sample. Similar results are obtained from standard univariate and vector autoregression models. Spillover effects between the four petroleum futures markets are also detected.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 3 (May)
Pages: 962-985

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:962-985

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Cited by:
  1. Goulas, Lambros & Skiadopoulos, George, 2012. "Are freight futures markets efficient? Evidence from IMAREX," International Journal of Forecasting, Elsevier, vol. 28(3), pages 644-659.
  2. Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo, 2008. "Short-term predictability of crude oil markets: A detrended fluctuation analysis approach," Energy Economics, Elsevier, vol. 30(5), pages 2645-2656, September.
  3. Daskalaki, Charoula & Skiadopoulos, George, 2011. "Should investors include commodities in their portfolios after all? New evidence," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2606-2626, October.
  4. Cavalcante, Mileno, 2010. "An Analysis of the relationship between WTI term structure and oil market fundamentals in 2002-2009," MPRA Paper 24263, University Library of Munich, Germany.
  5. Dennis Philip & Chihwa Kao & Giovanni Urga, 2007. "Testing for Instability in Factor Structure of Yield Curves," Center for Policy Research Working Papers 96, Center for Policy Research, Maxwell School, Syracuse University.
  6. Michael Ye & John Zyren & Joanne Shore & Thomas Lee, 2010. "Crude Oil Futures as an Indicator of Market Changes: A Graphical Analysis," International Advances in Economic Research, Springer, vol. 16(3), pages 257-268, August.
  7. Yue-Hua Dai & Wen-Jie Xie & Zhi-Qiang Jiang & George J. Jiang & Wei-Xing Zhou, 2014. "Correlation structure and principal components in global crude oil market," Papers 1405.5000, arXiv.org.

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