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The co-movements along the forward curve of natural gas futures: a structural view

  • Spargoli, Fabrizio

    ()

    (Universitat Pompeu Fabra and Università Politecnica delle Marche)

  • Zagaglia, Paolo

    ()

    (Bank of Finland Research and Stockholm University)

This paper studies the co-movements between the daily returns of forwards on natural gas traded in the NYMEX with maturity of 1, 2 and 3 months. We identify a structural multivariate BEKK model using a recursive assumption whereby shocks to the volatility of the returns are transmitted from the short to the long section of the forward curve. We find strong evidence of spillover effects in the conditional first moments, for which we show that the transmission mechanism operates from the shorter to the longer maturity. In terms of reduced form conditional second moments, the shortest the maturity, the higher the volatility of the return, and the more the returns become independent from the others and follow the dynamics of the underlying commodity. The evidence from the structural second moments indicates that the longer the maturity is, the higher the uncertainty about the returns. We also show that the higher the structural variance of a maturity relative to that of another maturity, the stronger the correlation between the two.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0826netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 26/2008.

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Length: 32 pages
Date of creation: 18 Nov 2008
Date of revision:
Handle: RePEc:hhs:bofrdp:2008_026
Contact details of provider: Postal:
Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland

Web page: http://www.suomenpankki.fi/en/

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  1. Nuno Cassola & Claudio Morana, 2007. "Comovements in Volatility in the Euro Money Market," ICER Working Papers 7-2007, ICER - International Centre for Economic Research.
  2. Ewing, Bradley T. & Malik, Farooq & Ozfidan, Ozkan, 2002. "Volatility transmission in the oil and natural gas markets," Energy Economics, Elsevier, vol. 24(6), pages 525-538, November.
  3. Lin, Sharon Xiaowen & Tamvakis, Michael N., 2001. "Spillover effects in energy futures markets," Energy Economics, Elsevier, vol. 23(1), pages 43-56, January.
  4. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  5. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
  6. Roberto Rigobon, 2001. "The Curse of Non-Investment Grade Countries," NBER Working Papers 8636, National Bureau of Economic Research, Inc.
  7. Hafner, Christian M. & Herwartz, Helmut, 2006. "Volatility impulse responses for multivariate GARCH models: An exchange rate illustration," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 719-740, August.
  8. Roberto Rigobon & Brian P. Sack, 2002. "The impact of monetary policy on asset prices," Finance and Economics Discussion Series 2002-4, Board of Governors of the Federal Reserve System (U.S.).
  9. Spargoli, Fabrizio & Zagaglia, Paolo, 2007. "The Comovements between Futures Markets for Crude Oil: Evidence from a Structural GARCH Model," Research Papers in Economics 2007:15, Stockholm University, Department of Economics.
  10. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  11. Marzo, Massimiliano & Zagaglia, Paolo, 2008. "A note on the conditional correlation between energy prices: Evidence from future markets," Energy Economics, Elsevier, vol. 30(5), pages 2454-2458, September.
  12. Roberto Rigobon & Brian Sack, 2003. "Spillovers Across U.S. Financial Markets," NBER Working Papers 9640, National Bureau of Economic Research, Inc.
  13. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 639-669.
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