Interpreting the oil risk premium: Do oil price shocks matter?

Daniele Valenti, Matteo Manera () and Alessandro Sbuelz

Energy Economics, 2020, vol. 91, issue C

Abstract: This paper analyzes the link between the economic fundamentals of the global crude oil markets and the oil futures risk premium. The compensation for risk required by speculators in the oil futures market is modelled as part of the endogenous transmission of oil price shocks. The empirical approach is based on a Structural Vector Autoregressive model of the international market for crude oil. The dynamic response functions show a negative relationship between the risk premium and the real price of oil, triggered by shocks to economic fundamentals. Moreover, the expected returns of a long futures investment are largely explained by a specific shock component related to oil speculators and a shift in the global demand for crude oil.

Keywords: Crude oil; Futures risk premium; Bayesian SVAR models; Oil price speculation (search for similar items in EconPapers)
JEL-codes: E32 Q40 Q41 Q43 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Interpreting the Oil Risk Premium: do Oil Price Shocks Matter? (2018)
Working Paper: Interpreting the Oil Risk Premium: do Oil Price Shocks Matter? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:91:y:2020:i:c:s0140988320302462

DOI: 10.1016/j.eneco.2020.104906

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