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Information Flows in the term structure of commodity prices

Author

Listed:
  • Delphine Lautier

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Franck Raynaud

    (Ecole Polytechnique Fédérale de Lausanne - Institut Supérieur des Sciences et Technologies de l'Environnement)

Abstract

Relying on conditional entropy and on the notion of information transfer, we investigate price relationships in the most important commodity futures market: the American crude oil market. We first show that the information shared by futures contracts with different delivery dates increases during the period under scrutiny (i.e. 2000-2011). This is especially true for intermediate maturities. When focusing on information transfer, on average on the whole period, it appears that short-term maturities emit more information than long-term ones. This is consistent with the normal functioning of a futures market. A dynamic analysis however reveals that the relative importance of information flows emerging in the far end of the curve (for long-term maturities) arises as integration progresses in the crude oil market. The transmission of shocks from the paper to the physical markets is thus facilitated. Last but not least, the direction of prices moves becomes less stable as time goes on. On the theoretical point of view, these findings raise questions about the segmentation theory and the Samuelson effect.

Suggested Citation

  • Delphine Lautier & Franck Raynaud, 2014. "Information Flows in the term structure of commodity prices," Post-Print hal-01655842, HAL.
  • Handle: RePEc:hal:journl:hal-01655842
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01655842
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    References listed on IDEAS

    as
    1. Delphine Lautier and Franck Raynaud, 2012. "Systemic Risk in Energy Derivative Markets: A Graph-Theory Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    2. Delphine Lautier & Franck Raynaud, 2012. "Systemic risk in energy derivative markets: a graph theory analysis," Post-Print halshs-00738201, HAL.
    3. Angus Deaton & Guy Laroque, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 1-23.
    4. Richard, Scott F. & Sundaresan, M., 1981. "A continuous time equilibrium model of forward prices and futures prices in a multigood economy," Journal of Financial Economics, Elsevier, vol. 9(4), pages 347-371, December.
    5. Ronald W. Anderson, 1985. "Some determinants of the volatility of futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 5(3), pages 331-348, September.
    6. Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-973, July.
    7. Bryan R. Routledge & Duane J. Seppi & Chester S. Spatt, 2000. "Equilibrium Forward Curves for Commodities," Journal of Finance, American Finance Association, vol. 55(3), pages 1297-1338, June.
    8. Ronald W. Anderson & Jean-Pierre Danthine, 1983. "The Time Pattern of Hedging and the Volatility of Futures Prices," Review of Economic Studies, Oxford University Press, vol. 50(2), pages 249-266.
    9. Leonid Kogan & Dmitry Livdan & Amir Yaron, 2009. "Oil Futures Prices in a Production Economy with Investment Constraints," Journal of Finance, American Finance Association, vol. 64(3), pages 1345-1375, June.
    10. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-157, April.
    11. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
    12. Nikolaos T. Milonas, 1986. "Price variability and the maturity effect in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 6(3), pages 443-460, September.
    13. Chambers, Marcus J & Bailey, Roy E, 1996. "A Theory of Commodity Price Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 924-957, October.
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    16. repec:dau:papers:123456789/9709 is not listed on IDEAS
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