Information transmission and market interactions across the Atlantic -- an empirical study on the natural gas market
AbstractThis paper studies the international information transmission and market interactions in the U.S. and U.K. natural gas markets. Three well documented approaches are used to measure the relative importance on the process of price discovery under a quadvariate system. After adjusting the effects of nonsynchronous trading prices, robust results indicate our system that includes spot and futures prices within the two countries are driven by one common factor. Information disseminates efficiently among the four markets concerned. The U.S. futures market dominates as the center for price discovery. The U.K. futures market comes as the second. The spot markets in the U.S. and U.K. are less efficient than their corresponding futures market, where the U.K. spot market contributes the least and almost zero to the price discovery process. Asymmetric volatility spillovers are found in three of the four markets. Volatility in the U.S. futures market increases with positive returns which illustrates the inverse leverage effect in most of the commodity market. Volatilities in the spot markets are negatively related to returns, which is analogous to the traditional leverage effect prevailing in most of the equity stock markets.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 31 (2009)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/eneco
Natural gas Price discovery Cointegration Common factor model Volatility spillovers;
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