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

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

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    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 4 (November)
    Pages: 408-414

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:4:p:408-414
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    8. Marzo, Massimiliano & Zagaglia, Paolo, 2008. "A note on the conditional correlation between energy prices: Evidence from future markets," Energy Economics, Elsevier, vol. 30(5), pages 2454-2458, September.
    9. Menzie D. Chinn & Michael LeBlanc & Olivier Coibion, 2005. "The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline," NBER Working Papers 11033, National Bureau of Economic Research, Inc.
    10. Chao Wei, 2003. "Energy, the Stock Market, and the Putty-Clay Investment Model," American Economic Review, American Economic Association, vol. 93(1), pages 311-323, March.
    11. Adrangi, Bahram & Chatrath, Arjun & Dhanda, Kanwalroop Kathy & Raffiee, Kambiz, 2001. "Chaos in oil prices? Evidence from futures markets," Energy Economics, Elsevier, vol. 23(4), pages 405-425, July.
    12. Herbert, John H., 1993. "The relation of monthly spot to futures prices for natural gas," Energy, Elsevier, vol. 18(11), pages 1119-1124.
    13. W. David Walls, 1995. "An Econometric Analysis of the Market for Natural Gas Futures," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 71-84.
    14. Cifter, Atilla & Ozun, Alper, 2007. "Multi-scale Causality between Energy Consumption and GNP in Emerging Markets: Evidence from Turkey," MPRA Paper 2483, University Library of Munich, Germany.
    15. Wong-Parodi, Gabrielle & Dale, Larry & Lekov, Alex, 2006. "Comparing price forecast accuracy of natural gas models and futures markets," Energy Policy, Elsevier, vol. 34(18), pages 4115-4122, December.
    16. Hui Guo & Kevin L. Kliesen, 2005. "Oil price volatility and U.S. macroeconomic activity," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 669-84.
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