 Are crude oil spot and futures prices cointegrated? Not always!Yudong Wang and Chongfeng Wu Economic Modelling, 2013, vol. 33, issue C, 641-650 Abstract: In previous studies, the cointegration relationships between crude oil spot and futures prices are confirmed based on Johansen (1988) test and vector error correction model (VECM). These conventional methods assume that the process of long-run equilibrium adjustment is linear. This paper revisits this topic employing nonlinear threshold VECM to take into account the nonlinear dynamics of equilibrium adjustment. Our results show that crude oil spot and futures prices are cointegrated only when the price differentials are larger than the threshold value. Moreover, we use a multi-frequency analysis based on low-pass filtering with different cut-off frequencies. The main findings indicate that the relationships between spot and futures prices are different between in the short-term and in the long-term. In the short-term, futures price plays the major role in the formation of long-run equilibrium (error correction mechanism). In the long-term, both spot and futures prices contribute to the dynamics of long-run equilibrium. Keywords: Crude oil price; Futures; Multi-frequency analysis; Cointegration; TVECM (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:ecmode:v:33:y:2013:i:c:p:641-650 DOI: 10.1016/j.econmod.2013.05.013 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling 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.