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Are Futures Prices Influenced by Spot;Prices or Vice-versa? An Analysis of Crude;Oil, Natural Gas and Gold Markets

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Listed:
  • Mihaela NICOLAU

    () (Danubius University, Galati, Romania)

  • Giulio PALOMBA

    () (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)

  • Ilaria TRAINI

    () ([n.a.])

Abstract

Considering the financial theory based on cost-of-carry model, a futures contract price is always influenced by the spot price of its underlying asset, as long as the futures price is determined as the sum of the underlying asset's spot price and its cost of carrying or storing. The aim of this paper is to verify if there are dynamic connections between spot and futures prices as statued by the cost-of-carry model, and to identify the direction of causality.;The empirical analysis is conducted on three different commodity markets, namely crude oil, natural gas and gold. We estimate a battery of recursive bivariate VAR models over a sample of daily spot and futures prices ranging from January 1997 to September 2013. Using the recursive Grange-rcausality analysis, we show that some interactions between spot and futures prices clearly exist and they mainly depend on market type and futures contract's maturity.

Suggested Citation

  • Mihaela NICOLAU & Giulio PALOMBA & Ilaria TRAINI, 2013. "Are Futures Prices Influenced by Spot;Prices or Vice-versa? An Analysis of Crude;Oil, Natural Gas and Gold Markets," Working Papers 394, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  • Handle: RePEc:anc:wpaper:394
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    References listed on IDEAS

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    Keywords

    Granger-Causality; commodity markets; recursive estimation; spot and futures prices;

    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
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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