Regime-dependent adjustment in energy spot and futures markets

Joscha Beckmann, Ansgar Belke and Robert Czudaj

Economic Modelling, 2014, vol. 40, issue C, 400-409

Abstract: This paper analyzes the relationship between the spot and futures prices of energy commodities from a new perspective. Taking data from the Dow Jones UBS Commodity Index, we first test for a long-run relationship between spot and futures prices. As a second step, smooth transition models are fitted to examine whether the adjustment of spot returns to the forward premium follows a nonlinear path. Although the findings show that the informational content of futures prices varies between different commodities, a similar pattern arises in all of them: the predictive power of futures prices can be observed only if previous volatility or the basis has been low, while no relationship arises if both have previously been high. Hence, past relative volatility is important for the present price discovery function.

Keywords: Energy; Cointegration; Commodities; Spot and futures markets; Smooth transition regression (search for similar items in EconPapers)
JEL-codes: G13 G14 Q43 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:40:y:2014:i:c:p:400-409

DOI: 10.1016/j.econmod.2013.12.026

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