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The influence of investors’ expectations on oil prices

Author

Listed:
  • Potanin, Bogdan

    (HSE University, Moscow, Russian Federation)

  • Trifonov, Juri

    (HSE University, Moscow, Russian Federation)

Abstract

This study applies various modifications of the GARCH-M process to model oil prices considering both the expectations of the investors and the risk premium. Futures contracts prices and volatility are used as a proxy for investors’ expectations and risk premium correspondingly. The advantage of the proposed approach is that the risk premium is modeled without accounting for exogenous factors, the selection of which, based on the literature, may be complicated. The results of the econometric analysis provide statistical evidence that volatility has a significant effect on the oil price, which justifies the usage of volatility as an indicator of the risk premium in the futures prices.

Suggested Citation

  • Potanin, Bogdan & Trifonov, Juri, 2021. "The influence of investors’ expectations on oil prices," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 63, pages 76-90.
    • Handle: RePEc:ris:apltrx:0427
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    References listed on IDEAS

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    More about this item

    Keywords

    oil pricing; agents’ expectations; futures contracts; endogenous volatility; risk premium; GARCH-M; structural breaks; semi-nonparametric methods.;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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