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High Price Volatility And Spillover Effects In Energy Markets

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  • Singh, Aaron
  • Karali, Berna
  • Ramirez, Octavio A.

Abstract

We analyze the time-varying volatility in crude oil, heating oil, and natural gas futures markets by incorporating changes in important macroeconomic variables and major political and weather-related events into the conditional variance equations. We allow asymmetric responses to random disturbances in each market as well as to good and bad economic news in the overall economy. We also investigate whether there are spillover effects among these energy markets. A bi-directional volatility spillover effect is found between heating oil and natural gas markets. Among the macro variables considered the spread between the 10-year and 2-year Treasury constant maturity rate is found to have a positive relationship between the volatilities of all commodities. The events that had a major impact on the volatilities of energy commodities include the September 11th terrorist attacks, hurricane Katrina, and the 2008 U.S. financial crisis. The theory of storage is not supported in any of the three commodities. Seasonality and day-of-the week effects are found for all three commodities. Key

Suggested Citation

  • Singh, Aaron & Karali, Berna & Ramirez, Octavio A., 2011. "High Price Volatility And Spillover Effects In Energy Markets," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103593, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103593
    DOI: 10.22004/ag.econ.103593
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    More about this item

    Keywords

    Marketing; Resource /Energy Economics and Policy;

    JEL classification:

    • 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
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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