The role of the threshold effect for the dynamics of futures and spot prices of energy commodities

Michał Rubaszek, Karolak Zuzanna, Kwas Marek and Gazi Uddin
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Karolak Zuzanna: SGH Warsaw School of Economics, Collegium of Economic Analysis, Warsaw, Poland
Kwas Marek: SGH Warsaw School of Economics, Collegium of Economic Analysis, Warsaw, Poland

Studies in Nonlinear Dynamics & Econometrics, 2020, vol. 24, issue 5, 20

Abstract: This study examines whether threshold models allow to better understand the dynamic relationship between spot and futures prices for crude oil and natural gas. Our findings are threefold. First, we show that the futures curve delivers relatively accurate forecasts for energy commodity prices. Second, we provide evidence that the relationship between spot and futures prices is regime dependent but accounting for this property does not improve the quality of out-of-sample forecasts. Third, we demonstrate that using information on the dynamics of financial variables (exchange rates, stock and uncertainty indices, interest rates or industrial and precious metal prices) does not contribute to the quality of futures-based forecasts. This suggests that the predictive content of these variables is already contained in futures prices.

Keywords: energy commodity prices; forecasting; futures markets; threshold models (search for similar items in EconPapers)
JEL-codes: C24 C34 L71 Q47 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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DOI: 10.1515/snde-2019-0068

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