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On the link between forward energy prices: A nonlinear panel cointegration approach

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  • Joëts, Marc
  • Mignon, Valérie

Abstract

This paper investigates the relationship between forward prices of oil, gas, coal, and electricity using a nonlinear panel cointegration framework. To this end, we consider a panel of 35 maturities and control for the economic and financial environment using equity futures prices. Estimating the cointegrating relationship, we find that oil, gas and coal forward prices are positively linked, while the negative link between oil and electricity prices is consistent with a substitution effect between the two energy sources on the long run. Estimating panel smooth transition regression (PSTR) models, we show that the forward oil price adjustment process toward its equilibrium value is nonlinear and asymmetric, putting forward the key role played by self-sustaining dynamics and speculation phenomena.

Suggested Citation

  • Joëts, Marc & Mignon, Valérie, 2012. "On the link between forward energy prices: A nonlinear panel cointegration approach," Energy Economics, Elsevier, vol. 34(4), pages 1170-1175.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:4:p:1170-1175
    DOI: 10.1016/j.eneco.2011.10.019
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    3. Delavari, Majid & Gandali Alikhani, Nadiya, 2013. "The Dynamic Effects of Crude Oil and Natural Gas Prices on Iran's Methanol," MPRA Paper 49733, University Library of Munich, Germany.
    4. Joëts, Marc, 2014. "Energy price transmissions during extreme movements," Economic Modelling, Elsevier, vol. 40(C), pages 392-399.
    5. Marc Joëts, 2012. "Mood-misattribution effect on energy markets: a biorhythm approach," EconomiX Working Papers 2012-24, University of Paris Nanterre, EconomiX.
    6. Delavari, Majid & Gandali Alikhani, Nadiya, 2012. "The Effect of Crude Oil Price on the Methanol price," MPRA Paper 49727, University Library of Munich, Germany.
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    8. Akbar Komijani & Nadiya Gandali Alikhani & Esmaeil Naderi, 2013. "The Long-run and Short-run Effects of Crude Oil Price on Methanol Market in Iran," International Journal of Energy Economics and Policy, Econjournals, vol. 3(1), pages 43-50.
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    11. Kani, Alireza H. & Abbasspour, Madjid & Abedi, Zahra, 2014. "Estimation of demand function for natural gas in Iran: Evidences based on smooth transition regression models," Economic Modelling, Elsevier, vol. 36(C), pages 341-347.
    12. Fan, Xinghua & Wang, Li & Li, Shasha, 2016. "Predicting chaotic coal prices using a multi-layer perceptron network model," Resources Policy, Elsevier, vol. 50(C), pages 86-92.
    13. Zhihua Ding & Caicai Feng & Zhenhua Liu & Guangqiang Wang & Lingyun He & Manzhi Liu, 2017. "Coal price fluctuation mechanism in China based on system dynamics model," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 85(2), pages 1151-1167, January.
    14. Delavari, Majid & Gandali Alikhani, Nadiya & Naderi, Esmaeil, 2012. "The analyses of Crude Oil and Natural Gas Prices on Petrochemicals Products: A Case Study of IRAN's Methanol," MPRA Paper 48788, University Library of Munich, Germany.
    15. Marc Joëts, 2013. "Energy price transmissions during extreme movements," Working Papers 2013-28, Department of Research, Ipag Business School.

    More about this item

    Keywords

    Forward energy prices; Speculation; Panel cointegration; Nonlinear model; PSTR;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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