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On the link between forward energy prices: A nonlinear panel cointegration approach

Author

Listed:
  • Valérie Mignon

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Marc Joëts

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the relationship between forward prices of oil, gas, coal, and electricity using a nonlinear panel cointegration framework. To this end, we consider a panel of 35 maturities and control for the economic and financial environment using equity futures prices. Estimating the cointegrating relationship, we find that oil, gas and coal forward prices are positively linked, while the negative link between oil and electricity prices is consistent with a substitution effect between the two energy sources on the long run. Estimating panel smooth transition regression (PSTR) models, we show that the forward oil price adjustment process toward its equilibrium value is nonlinear and asymmetric, putting forward the key role played by self-sustaining dynamics and speculation phenomena.

Suggested Citation

  • Valérie Mignon & Marc Joëts, 2011. "On the link between forward energy prices: A nonlinear panel cointegration approach," Working Papers hal-04140978, HAL.
    • Handle: RePEc:hal:wpaper:hal-04140978
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140978
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    More about this item

    Keywords

    forward energy prices; speculation; panel cointegration; nonlinear model; PSTR;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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