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Wavelet domain correlation between the futures prices of natural gas and oil

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  • Tonn, Victor Lux
  • Li, H.C.
  • McCarthy, Joseph
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    Abstract

    This paper studies the relationship between futures prices of natural gas and oil. Using wavelet analysis, our research reveals that, throughout the sampled period: (1) the prices of natural gas futures and oil futures have high covariance at high frequencies but not so much at low frequencies; (2) an increase in financialization of commodities commensurate with investors search for yield results in higher covariance between the futures prices of natural gas and oil; and (3) the volatility of neither time series consistently leads the other even at high frequencies.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 4 (November)
    Pages: 408-414

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:4:p:408-414

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Natural gas futures Oil futures Wavelet analysis Wavelet cross bicoherence Financialization Search for yield;

    References

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    5. Adrangi, Bahram & Chatrath, Arjun & Dhanda, Kanwalroop Kathy & Raffiee, Kambiz, 2001. "Chaos in oil prices? Evidence from futures markets," Energy Economics, Elsevier, vol. 23(4), pages 405-425, July.
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    8. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
    9. Michelle Michot Foss, 2005. "Global Natural Gas Issues and Challenges: A Commentary," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 111-128.
    10. Cifter, Atilla & Ozun, Alper, 2007. "Multi-scale Causality between Energy Consumption and GNP in Emerging Markets: Evidence from Turkey," MPRA Paper 2483, University Library of Munich, Germany.
    11. Wong-Parodi, Gabrielle & Dale, Larry & Lekov, Alex, 2006. "Comparing price forecast accuracy of natural gas models and futures markets," Energy Policy, Elsevier, vol. 34(18), pages 4115-4122, December.
    12. Menzie D. Chinn & Michael LeBlanc & Olivier Coibion, 2005. "The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline," NBER Working Papers 11033, National Bureau of Economic Research, Inc.
    13. Marzo, Massimiliano & Zagaglia, Paolo, 2008. "A note on the conditional correlation between energy prices: Evidence from future markets," Energy Economics, Elsevier, vol. 30(5), pages 2454-2458, September.
    14. Sharif Md. Raihan & Yi Wen & Bing Zeng, 2005. "Wavelet: a new tool for business cycle analysis," Working Papers 2005-050, Federal Reserve Bank of St. Louis.
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    16. Herbert, John H., 1993. "The relation of monthly spot to futures prices for natural gas," Energy, Elsevier, vol. 18(11), pages 1119-1124.
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    Cited by:
    1. Rua, António & Nunes, Luis C., 2012. "A wavelet-based assessment of market risk: The emerging markets case," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 84-92.
    2. Delavari, Majid & Gandali Alikhani, Nadiya, 2012. "The Effect of Crude Oil Price on the Methanol price," MPRA Paper 49727, University Library of Munich, Germany.
    3. He, Yongxiu & Wang, Bing & Wang, Jianhui & Xiong, Wei & Xia, Tian, 2013. "Correlation between Chinese and international energy prices based on a HP filter and time difference analysis," Energy Policy, Elsevier, vol. 62(C), pages 898-909.
    4. Kriechbaumer, Thomas & Angus, Andrew & Parsons, David & Rivas Casado, Monica, 2014. "An improved wavelet–ARIMA approach for forecasting metal prices," Resources Policy, Elsevier, vol. 39(C), pages 32-41.
    5. Mihaela NICOLAU & Giulio PALOMBA & Ilaria TRAINI, 2013. "Are Futures Prices Influenced by Spot;Prices or Vice-versa? An Analysis of Crude;Oil, Natural Gas and Gold Markets," Working Papers 394, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    6. Gazi Salah Uddin & Mohamed Arouri & Aviral Kumar Tiwari, 2014. "Co-movements between Germany and International Stock Markets: Some New Evidence from DCC-GARCH and Wavelet Approaches," Working Papers 2014-143, Department of Research, Ipag Business School.

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