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Dynamic relationships between spot and futures prices. The case of energy and gold commodities

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  • Nicolau, Mihaela
  • Palomba, Giulio

Abstract

According to the most common financial theories, the price of a futures contract is always influenced by the spot price of its underlying asset (the cost-of-carry model) or by the expected future spot price conditional on information set (the asset-pricing theory). The aim of this paper is to analyze the dynamic relationship between spot and futures prices, and to establish if there is the possibility of a valid “period by period” prediction of the futures price conditional on the prediction of the spot price, and vice-versa. The empirical analysis is conducted on the two most important energy commodities, crude oil and natural gas, and on gold, the most important commodity used for risk hedging and investment during financial turmoil, paying particular attention to the exogeneity issue. We estimate a battery of recursive bivariate VAR models over a sample of daily spot and futures prices, ranging from January 1997 to May 2014. Our results show that some interactions between spot and futures prices clearly exist and they mainly depend on commodity type and futures contracts maturity. Thus, a strong exogeneity operates in the case of the natural gas, while this is not the case for the crude oil, where the exogeneity generally is weak and depends on the contract maturity. On the gold market the results show no possibility of a valid forecasting between spot and futures prices.

Suggested Citation

  • Nicolau, Mihaela & Palomba, Giulio, 2015. "Dynamic relationships between spot and futures prices. The case of energy and gold commodities," Resources Policy, Elsevier, vol. 45(C), pages 130-143.
  • Handle: RePEc:eee:jrpoli:v:45:y:2015:i:c:p:130-143
    DOI: 10.1016/j.resourpol.2015.04.004
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    Cited by:

    1. Ruan, Qingsong & Huang, Ying & Jiang, Wei, 2016. "The exceedance and cross-correlations between the gold spot and futures markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 463(C), pages 139-151.
    2. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2015. "A real-time quantile-regression approach to forecasting gold returns under asymmetric loss," Resources Policy, Elsevier, vol. 45(C), pages 299-306.
    3. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2016. "A boosting approach to forecasting the volatility of gold-price fluctuations under flexible loss," Resources Policy, Elsevier, vol. 47(C), pages 95-107.
    4. Fernandez, Viviana, 2017. "A historical perspective of the informational content of commodity futures," Resources Policy, Elsevier, vol. 51(C), pages 135-150.

    More about this item

    Keywords

    Energy commodities; Spot and futures prices; Recursive estimation; Exogeneity;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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