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Abstract

We investigate the role of crude oil spot and futures prices in the process of price discovery by using a cost-of-carry model with an endogenous convenience yield and daily data over the period from January 1990 to December 2008. We provide evidence that futures markets play a more important role than spot markets in the case of contracts with shorter maturities, but the relative contribution of the two types of market turns out to be highly unstable, especially for the most deferred contracts. The implications of these results for hedging and forecasting crude oil spot prices are also discussed.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.354179.de/dp988.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 988.

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Length: 28 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp988

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Related research

Keywords: Cointegration; oil market; futures prices; price discovery;

Other versions of this item:

Find related papers by JEL classification:

• C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
• G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
• G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

This paper has been announced in the following NEP Reports:

• NEP-ALL-2010-04-04 (All new papers)
• NEP-ENE-2010-04-04 (Energy Economics)
• NEP-FOR-2010-04-04 (Forecasting)
• NEP-MST-2010-04-04 (Market Microstructure)

References

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Cited by:

1. Francesco Venturini, 2011. "Product variety, product quality, and evidence of Schumpeterian endogenous growth: a note," Quaderni del Dipartimento di Economia, Finanza e Statistica 93/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.

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