IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v56y2016icp351-362.html
   My bibliography  Save this article

A re-examination of maturity effect of energy futures price from the perspective of stochastic volatility

Author

Listed:
  • Liu, Wei-han

Abstract

This paper selects stochastic volatility (SV) as the uncertainty or volatility measure to re-examine the Samuelson hypothesis of maturity effect (SHME) (Samuelson, 1965). Stochastic dominance is used to examine whether the stochastic volatility level dominates with respect to maturity. The empirical analyses of energy-futures price series generally provide mild support for this hypothesis in terms of the first two degrees of stochastic dominance. Each type of futures has its own properties with respect to the maturity effect. SV levels play a role in determining the testing outcome. The hypothesis is more likely to hold at low SV levels. The higher the volatility level, the less likely the SHME will hold because SV surges to its peak level regardless of maturity.

Suggested Citation

  • Liu, Wei-han, 2016. "A re-examination of maturity effect of energy futures price from the perspective of stochastic volatility," Energy Economics, Elsevier, vol. 56(C), pages 351-362.
    • Handle: RePEc:eee:eneeco:v:56:y:2016:i:c:p:351-362
    DOI: 10.1016/j.eneco.2016.03.026
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988316300767
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2016.03.026?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Apostolos Serletis, 2007. "Unit Root Behavior in Energy Futures Prices," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 1, pages 7-14, World Scientific Publishing Co. Pte. Ltd..
    2. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 2002. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 69-87, January.
    3. McCausland, William J. & Miller, Shirley & Pelletier, Denis, 2011. "Simulation smoothing for state-space models: A computational efficiency analysis," Computational Statistics & Data Analysis, Elsevier, vol. 55(1), pages 199-212, January.
    4. Duong, Huu Nhan & Kalev, Petko S., 2008. "The Samuelson hypothesis in futures markets: An analysis using intraday data," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 489-500, April.
    5. Sangjoon Kim & Neil Shephard & Siddhartha Chib, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 361-393.
    6. Petko S. Kalev & Huu Nhan Duong, 2008. "A test of the Samuelson Hypothesis using realized range," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(7), pages 680-696, July.
    7. Ronald W. Anderson, 1985. "Some determinants of the volatility of futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 5(3), pages 331-348, September.
    8. Håvard Rue, 2001. "Fast sampling of Gaussian Markov random fields," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 63(2), pages 325-338.
    9. repec:dau:papers:123456789/1906 is not listed on IDEAS
    10. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models: Comments: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 413-417, October.
    11. Chen, Pei-Fen & Lee, Chien-Chiang & Zeng, Jhih-Hong, 2014. "The relationship between spot and futures oil prices: Do structural breaks matter?," Energy Economics, Elsevier, vol. 43(C), pages 206-217.
    12. Rutledge, D J S, 1976. "A Note on the Variability of Futures Prices," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 118-120, February.
    13. BAUWENS, Luc & HAFNER, Christian & LAURENT, Sébastien, 2011. "Volatility models," LIDAM Discussion Papers CORE 2011058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
      • Bauwens, L. & Hafner, C. & Laurent, S., 2012. "Volatility Models," LIDAM Reprints ISBA 2012028, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
      • Bauwens, L. & Hafner C. & Laurent, S., 2011. "Volatility Models," LIDAM Discussion Papers ISBA 2011044, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    14. Apostolos Serletis, 2007. "Maturity Effects in Energy Futures," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 3, pages 23-37, World Scientific Publishing Co. Pte. Ltd..
    15. Pedro Gurrola & Renata Herrerías, 2011. "Maturity effects in the Mexican interest rate futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(4), pages 371-393, April.
    16. Kastner, Gregor, 2016. "Dealing with Stochastic Volatility in Time Series Using the R Package stochvol," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 69(i05).
    17. Tina M. Galloway & Robert W. Kolb, 1996. "Futures prices and the maturity effect," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(7), pages 809-828, October.
    18. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    19. Kastner, Gregor & Frühwirth-Schnatter, Sylvia, 2014. "Ancillarity-sufficiency interweaving strategy (ASIS) for boosting MCMC estimation of stochastic volatility models," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 408-423.
    20. PREMINGER, Arie & HAFNER, Christian, 2006. "Deciding between GARCH and stochastic volatility via strong decision rules," LIDAM Discussion Papers CORE 2006042, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    21. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
    22. Frühwirth-Schnatter, Sylvia & Wagner, Helga, 2010. "Stochastic model specification search for Gaussian and partial non-Gaussian state space models," Journal of Econometrics, Elsevier, vol. 154(1), pages 85-100, January.
    23. Beaulieu, Marie-Claude, 1998. "Time to maturity in the basis of stock market indices: Evidence from the S&P 500 and the MMI," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 177-195, September.
    24. Saurabh Gupta & Prabina Rajib, 2012. "Samuelson Hypothesis & Indian Commodity Derivatives Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 19(4), pages 331-352, November.
    25. Bekiros, Stelios D. & Diks, Cees G.H., 2008. "The relationship between crude oil spot and futures prices: Cointegration, linear and nonlinear causality," Energy Economics, Elsevier, vol. 30(5), pages 2673-2685, September.
    26. Vinod, H. D., 2004. "Ranking mutual funds using unconventional utility theory and stochastic dominance," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 353-377, June.
    27. Houthakker, Hendrik S. & Williamson, Peter J., 1996. "The Economics of Financial Markets," OUP Catalogue, Oxford University Press, number 9780195044072, Decembrie.
    28. Daal, Elton & Farhat, Joseph & Wei, Peihwang P., 2006. "Does futures exhibit maturity effect? New evidence from an extensive set of US and foreign futures contracts," Review of Financial Economics, Elsevier, vol. 15(2), pages 113-128.
    29. Liu, 2014. "Do futures prices exhibit maturity effect? A nonparametric revisit," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 813-825, March.
    30. Stelios Bekiros & Dimitris Georgoutsos, 2007. "Extreme returns and the contagion effect between the foreign exchange and the stock market: evidence from Cyprus," Applied Financial Economics, Taylor & Francis Journals, vol. 18(3), pages 239-254.
    31. Nikolaos T. Milonas, 1986. "Price variability and the maturity effect in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 6(3), pages 443-460, September.
    32. M. Angeles Carnero, 2004. "Persistence and Kurtosis in GARCH and Stochastic Volatility Models," Journal of Financial Econometrics, Oxford University Press, vol. 2(2), pages 319-342.
    33. Samuelson, Paul A, 1976. "Is Real-World Price a Tale Told by the Idiot of Chance?," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 120-123, February.
    34. Yen‐Ju Chen & Jin‐Chuan Duan & Mao‐Wei Hung, 1999. "Volatility and maturity effects in the Nikkei index futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(8), pages 895-909, December.
    35. Maslyuk, Svetlana & Smyth, Russell, 2009. "Cointegration between oil spot and future prices of the same and different grades in the presence of structural change," Energy Policy, Elsevier, vol. 37(5), pages 1687-1693, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Brooks & Pavel Teterin, 2020. "Samuelson hypothesis, arbitrage activity, and futures term premiums," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(9), pages 1420-1441, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hoang‐Long Phan & Ralf Zurbruegg, 2020. "The time‐to‐maturity pattern of futures price sensitivity to news," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(1), pages 126-144, January.
    2. David E. Allen & Michael McAleer, 2020. "Do We Need Stochastic Volatility and Generalised Autoregressive Conditional Heteroscedasticity? Comparing Squared End-Of-Day Returns on FTSE," Risks, MDPI, vol. 8(1), pages 1-20, February.
    3. David Edmund Allen, 2020. "Stochastic Volatility and GARCH: Do Squared End-of-Day Returns Provide Similar Information?," JRFM, MDPI, vol. 13(9), pages 1-25, September.
    4. Liu, 2014. "Do futures prices exhibit maturity effect? A nonparametric revisit," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 813-825, March.
    5. Robert Brooks & Pavel Teterin, 2020. "Samuelson hypothesis, arbitrage activity, and futures term premiums," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(9), pages 1420-1441, September.
    6. Kastner, Gregor & Frühwirth-Schnatter, Sylvia, 2014. "Ancillarity-sufficiency interweaving strategy (ASIS) for boosting MCMC estimation of stochastic volatility models," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 408-423.
    7. Gregor Kastner & Sylvia Fruhwirth-Schnatter & Hedibert Freitas Lopes, 2016. "Efficient Bayesian Inference for Multivariate Factor Stochastic Volatility Models," Papers 1602.08154, arXiv.org, revised Jul 2017.
    8. Madarassy Akin, Rita, 2003. "Maturity Effects in Futures Markets: Evidence from Eleven Financial Futures Markets," Santa Cruz Department of Economics, Working Paper Series qt1n04g31b, Department of Economics, UC Santa Cruz.
    9. Darjus Hosszejni & Gregor Kastner, 2019. "Modeling Univariate and Multivariate Stochastic Volatility in R with stochvol and factorstochvol," Papers 1906.12123, arXiv.org, revised Feb 2021.
    10. Anthony N. Rezitis & Gregor Kastner, 2021. "On the joint volatility dynamics in international dairy commodity markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(3), pages 704-728, July.
    11. Peter Knaus & Sylvia Fruhwirth-Schnatter, 2023. "The Dynamic Triple Gamma Prior as a Shrinkage Process Prior for Time-Varying Parameter Models," Papers 2312.10487, arXiv.org.
    12. Xu, Kewei & Xiong, Xiong & Li, Xiao, 2021. "The maturity effect of stock index futures: Speculation or carry arbitrage?," Research in International Business and Finance, Elsevier, vol. 58(C).
    13. Jing Ao & Jihui Chen, 2020. "Price Volatility, the Maturity Effect, and Global Oil Prices: Evidence from Chinese Commodity Futures Markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(4), pages 627-654, October.
    14. Anthony N. Rezitis & Gregor Kastner, 2021. "On the joint volatility dynamics in dairy markets," Papers 2104.12707, arXiv.org.
    15. Bitto, Angela & Frühwirth-Schnatter, Sylvia, 2019. "Achieving shrinkage in a time-varying parameter model framework," Journal of Econometrics, Elsevier, vol. 210(1), pages 75-97.
    16. Phan, Hoàng-Long & Zurbruegg, Ralf & Brockman, Paul & Yu, Chia-Feng (Jeffrey), 2022. "Time-to-maturity and commodity futures return volatility: The role of time-varying asymmetric information," Journal of Commodity Markets, Elsevier, vol. 26(C).
    17. Joshua C.C. Chan & Rodney W. Strachan, 2023. "Bayesian State Space Models In Macroeconometrics," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 58-75, February.
    18. Herbert, John H, 1995. "Trading volume, maturity and natural gas futures price volatility," Energy Economics, Elsevier, vol. 17(4), pages 293-299, October.
    19. Ergen, Ibrahim & Rizvanoghlu, Islam, 2016. "Asymmetric impacts of fundamentals on the natural gas futures volatility: An augmented GARCH approach," Energy Economics, Elsevier, vol. 56(C), pages 64-74.
    20. Sakaria, D.K. & Griffin, J.E., 2017. "On efficient Bayesian inference for models with stochastic volatility," Econometrics and Statistics, Elsevier, vol. 3(C), pages 23-33.

    More about this item

    Keywords

    Samuelson hypothesis of maturity effect; Stochastic volatility; Stochastic dominance;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:56:y:2016:i:c:p:351-362. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.