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Wavelet domain correlation between the futures prices of natural gas and oil

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  • Tonn, Victor Lux
  • Li, H.C.
  • McCarthy, Joseph

Abstract

This paper studies the relationship between futures prices of natural gas and oil. Using wavelet analysis, our research reveals that, throughout the sampled period: (1) the prices of natural gas futures and oil futures have high covariance at high frequencies but not so much at low frequencies; (2) an increase in financialization of commodities commensurate with investors search for yield results in higher covariance between the futures prices of natural gas and oil; and (3) the volatility of neither time series consistently leads the other even at high frequencies.

Suggested Citation

  • Tonn, Victor Lux & Li, H.C. & McCarthy, Joseph, 2010. "Wavelet domain correlation between the futures prices of natural gas and oil," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(4), pages 408-414, November.
    • Handle: RePEc:eee:quaeco:v:50:y:2010:i:4:p:408-414
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