 Price discovery under model uncertaintyJaeho Kim and Scott Linn Energy Economics, 2022, vol. 107, issue C Abstract: In this study, we empirically investigate whether or not the conventional belief that new information about fundamental value is revealed in the futures market ahead of the spot market is applicable to four important storable energy commodities, oil, gasoline, heating oil and natural gas. Taking into account regime-switching model parameters derived from a sound economic model, our Bayesian analysis clearly shows significant heterogeneity in the futures market’s contribution to price discovery across commodities and time periods. This indicates that valuable information about the underlying price is also revealed in the spot market. We also develop a new price discovery measure that can be applied to regime switching error correction models. Our simulation results demonstrate the superior performance of the new measure compared to extant alternatives. Keywords: Price discovery; Energy commodities; Regime switching; Vector error correction; Bayesian inference (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:107:y:2022:i:c:s0140988322000202 DOI: 10.1016/j.eneco.2022.105833 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.