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Tracking spot oil: The elusive quest

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  • Chincarini, Ludwig

Abstract

It has been well documented that oil investing vehicles do a poor job of tracking spot oil over long periods. We create optimized investment vehicles that attempt to use backward- and forward-looking indicators in the oil market in order to better track spot oil. Nevertheless, we find that it is extremely difficult to track spot oil using a combination of oil futures, oil stocks, and oil ETFs. However, some contango drag from investing in oil futures can be eliminated, although at the cost of a higher tracking error, by using a forward-looking dynamic strategy that invests in both oil futures and oil stocks.

Suggested Citation

  • Chincarini, Ludwig, 2020. "Tracking spot oil: The elusive quest," Journal of Commodity Markets, Elsevier, vol. 17(C).
    • Handle: RePEc:eee:jocoma:v:17:y:2020:i:c:s2405851318300825
    DOI: 10.1016/j.jcomm.2019.04.003
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    References listed on IDEAS

    as
    1. Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
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    4. Kenneth J. Singleton, 2014. "Investor Flows and the 2008 Boom/Bust in Oil Prices," Management Science, INFORMS, vol. 60(2), pages 300-318, February.
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    Cited by:

    1. Chincarini, Ludwig B. & Moneta, Fabio, 2021. "The challenges of oil investing: Contango and the financialization of commodities," Energy Economics, Elsevier, vol. 102(C).

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    More about this item

    Keywords

    Oil investing; Futures investing; Tracking error; Commodities; Exchange-traded funds;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G4 - Financial Economics - - Behavioral Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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