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Time-Varying Spot and Futures Oil Price Dynamics

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  • Guglielmo Maria Caporale
  • Davide Ciferri
  • Allessandro Girardi

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

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References

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Cited by:
  1. Silvério, Renan & Szklo, Alexandre, 2012. "The effect of the financial sector on the evolution of oil prices: Analysis of the contribution of the futures market to the price discovery process in the WTI spot market," Energy Economics, Elsevier, vol. 34(6), pages 1799-1808.
  2. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 166-181.
  3. 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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